In March 2020 when the global COVID-19 pandemic caused our country to shut down and blew up our economy in the process, I came to a powerful realization: This pandemic represents the greatest wake-up call in our lifetime to get our finances in order. If this isn’t a big enough red flag for us, I don’t know what is. Now, over a year later with some time to reflect, I’ve put together a list of the five most important things I’ve learned from the pandemic.
1) Build an Emergency Fund
Consider the fact that many Americans can’t come up with $400 (cash) in an emergency and perhaps more alarming 21% say they have no emergency savings. For most of us, our place of employment provides the number one source of income. Well, the pandemic proved that job security can be taken away in a flash without warning. Now more than ever it’s vital to build an emergency savings fund to account for the unpredictability of life. While financial experts like Dave Ramsey will tell you to have $1,000 saved, I say, although that’s a great start, it’s not nearly enough.
Case in point: A few summers ago our home exterior A/C unit went out and needed to be replaced. The cost? $2,200! After this experience I decided that $2,500 is a much better savings benchmark. Additionally, Ramsey, along with other experts, recommend having 3-to-6 months of living expenses on hand. Of course, the amount required to be saved varies based on each person’s monthly expenses. Now would be a great time to figure that out and develop a target savings goal. Remember that an emergency fund is simply insurance against debt when life throws you a curveball.
2) Pay Off Debt
Only 20% of Americans are free from any form of debt and nearly 80% are living paycheck to paycheck. Debt is BIG business in America. In related news, credit card interest rates are the highest in history. While most of us cannot simply pay off a home mortgage or car note on a whim, it is probably a more feasible goal to knockout other consumer debt such as credit cards and perhaps student loans. I’ve been seeing plenty of people being sued and taken to court over unpaid debt, not to mention cars being repossessed and home foreclosed upon. This is definitely a situation you want to avoid.
3) Develop Multiple Streams of Income
When the economy crashed from the pandemic many people were either laid off, furloughed, or forced to take a pay cut from their jobs. As a result, these individuals may have had to apply for unemployment, borrow money from family or friends, or rely solely on credit cards to survive until they landed another job.
You’ve probably heard many personal financial experts stress the importance of having multiple streams of income, more specifically developing “passive income.” An example of passive income would be real estate investing and becoming a property manager, but that’s not for everyone. However, there are many ways to earn extra income. For example, part-time jobs, starting a side hustle, become a rideshare driver, freelance work, online reselling, running food for delivery app services, and participating in marketing research studies, just to name a few.
There are many ways to earn extra money actively or passively. Think about what you’re passionate about and if you can transform that into an income stream. Securing multiple streams of income might prove valuable in a situation where you lose one of them.
4) Retirement Planning
I don’t know about you, but I don’t want to work the rest of my life! It wasn’t until my dad retired at the end of 2020 that I started seriously thinking about retirement – more specifically, if I will ever be able to pull this feat off. Coincidentally, Netflix launched a new documentary series titled “Money, Explained” with one of the episodes covering retirement. The show shocked me with gloom and doom statistics such as “25% of Americans have $0 saved for retirement.” The documentary also stated that to retire comfortably, middle-class Americans should save at least $1 million, however 92% of Americans are not meeting their retirement saving target. As a result, most people will not be able to maintain their standard of living into retirement and will sink from a middle-class life to a near poverty experience.
There was a period of nearly 10 years after the Great Recession where I worked various jobs that did not offer any type of retirement benefits or investment plans, etc. Unfortunately, this caused me to become way behind in any type of retirement planning and saving. Now I’m playing catch up. However, I’m happy to report that last year was the first time I was able to max out my employee sponsored 401(k) plan. I hope to continue this trend, however it takes planning and sacrifice to accomplish it.
With all these retirement thoughts in my head I decided it would be a good idea to start a series of “Retirement Talks” on my YouTube channel. My first interview was with my dad who successfully retired during a pandemic. I’ve learned a tremendous amount of valuable information from the few interviews that I’ve conducted so far.
5) Invest in Yourself
This one might be the most important of the list. It’s always wise to invest in yourself. Never stop learning. Thanks to the internet we now have a plethora of educational opportunities through online classes, webinars, podcasts, etc. You could also attend conferences, workshops, or seminars in the field of your passion. Many universities offer continuing or professional education courses either in classroom or online. But investing in yourself doesn’t necessarily mean going to back school. It could mean starting a business and developing an entrepreneurial spirit.
Final Thoughts
The pandemic has changed many people’s way of life and mindset forever. While this list represents the most glaringly obvious things I’ve learned, I’m sure there will be many more lessons learned in the near future.
Jason is the author of Margin Matters: How to Live on a Simple Budget & Crush Debt Forever.