The pandemic has been difficult for just about everyone. But difficult experiences often provide important life lessons. In this case, some of the most valuable lessons of the pandemic are financial.
When life gets back to normal, we would all be wise to remember (and live by) these important financial lessons from the pandemic:
Maintain an emergency fund
Millions of people lost their jobs or took pay cuts during the pandemic. Those who have kept their jobs have been forced to pay higher prices on food, gas and almost everything else due to pandemic-fueled supply chain challenges and inflation. For many of those who had been saving for a rainy day, the rainy day has arrived.
Not every financial crisis is worldwide; more often, it’s an unexpected car repair, broken appliance, or medical bill. If you don’t have an emergency fund available for those unplanned expenses, you may have to resort to using credit to stay afloat.
Many experts recommend building an emergency fund that would cover expenses for three to six months. But it’s ok to start small. Try to save $25 per week in a separate savings account. In a year’s time, you’ll have $1,200. When you’re able, increase the amount you’re saving each week or month. When the next crisis arises, you’ll thank yourself.
Use credit responsibly
Consumer credit scores rose significantly during the pandemic, mainly because people were paying off more of their credit card debt and not opening new credit card accounts as frequently, according to data from the Federal Reserve. However, ScoreSense® data shows that the number of delinquent credit accounts has begun to increase again—and late payments can lead to a lower credit score.
Rather than slipping back into old habits, try to adopt the credit practices of the pandemic. That means paying bills on time, working to pay down debt, and avoiding new debt you can’t afford. As the pandemic data shows, these habits can result in higher credit scores.
Spend more time at home
Pandemic restrictions forced us all into staying at home more, cooking our own meals and entertaining ourselves rather than dining out and attending concerts, movies, and other events. That didn’t just help fight the spread; it also helped us save money. For example, 64% of Americans said they were spending less on dining out and 61% said they were spending less on entertainment during the pandemic.
Now that most businesses are fully open again, don’t abandon your new home routines. You can go out occasionally, but continue to save money by cooking at home, hosting friends, and enjoying Netflix nights more than you would have before the pandemic.
The money you save here and there by reining in spending can help you build savings over time, making it possible to accomplish your future financial goals.
For example, before the pandemic, the U.S. personal savings rate was around 8 percent or lower. But when the pandemic hit, people started saving more money. In March 2020, the savings rate jumped to 13.1 percent, and in April 2020, it climbed to 33.8 percent. The average savings rate remained well above 10 percent for more than 12 months.
Pandemic-fueled shutdowns meant there were fewer opportunities to spend, but many of us were also more focused on saving during a time of uncertainty. Clearly, Americans can be financially disciplined; and if you can exercise those disciplinary muscles, you’ll be better able to reach your financial goals.
During the 2008 recession, Generation Xers, born between 1965 and 1980, were the hardest hit, as they were younger and less established in their careers. However, during the pandemic, Gen Xers increased their wealth by about 50 percent, according to data from the Federal Reserve. This time around, Xers are closer to their peak earning years, so their retirement accounts benefited from market gains. Because many already own homes, they were able to sell at a profit during the housing crunch.
Younger workers who couldn’t capitalize on the opportunities of the pandemic shouldn’t worry. Instead, be inspired by the financial recovery of Gen Xers over the past decade. Try to be patient and realize that continuing to make smart financial choices over the long term will usually pay off.
When the pandemic is behind us, we’ll all be grateful. But don’t let it get away without internalizing some of the financial lessons it taught, so you can move into a more financially secure future.
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