COVID-19 and Your Finances

There are many lessons to learn from COVID-19 and impact of the pandemic on families, relationships, jobs, and money.  For some who work in the entertainment and restaurants, to name just two, it was devastating. For some, especially in the home improvement industry, it was generally a boom. Some lost jobs, while others maintained their workflow pretty much without a hiccup.  It would be difficult, however, to find someone who did not experience some level of trauma, fear, and uncertainty.

As the direst times of the pandemic seem to be behind us, at least here in the United States, it is a good time to reflect and review the financial implications of these last sixteen or so months have had. For those financially devastated, it’s a time of rebuilding and opportunities to work and rebound appear to on the rise.

“According to the economic projections of the Federal Reserve, the unemployment rate in the US will average 4.5% by the end of 2021 and pursue its fall in 2022 and 2023, reaching 3.8% and 3.5% levels correspondingly.” (Source: US Unemployment Forecast 2021-26).

These numbers are down from 2020 levels of almost 7%.

For those whose financial situation did not get substantially impacted, you might find that your savings accounts have risen as spending on vacations, dining out and entertainment went to near zero. According to the Economic Research Department of the Federal Reserve Bank of Kansas City, there was a sharp increase in savings as a percentage of personal income from 7.2% in December 2019 to a record high of 33.7% in April 2020.

These statistics are staggering considering the dramatic increase, in a country hooked on spending.

This is a great time to reassess your spending decisions and how much value you place on accumulation to reach your goals and achieve financial security.  That is not to say that everyone should lock down their spending and live in hibernation, not at all. But an honest evaluation of what is meaningful and important in your spend vs save decisions.

Here are some other factors to consider:

There is a pent-up demand for travel and entertainment and prices are markedly higher.

Business owners are navigating higher costs and the need to increase prices as wages and the cost of operations increase.  These pressures can quickly eat into savings if spending goes unchecked.

Goals-based planning is a bottom-up approach, which means you begin with your most important financial objectives (for example, emergency fund, retirement, college, debt-reduction, etc.) and factor in your necessary savings rate to reach those goals.  Once you factor in the saving rate, you now know how much you have left to spend on operating your day-to-day life (food, shelter, transportation, insurance, etc.).

As you examine your budget, factor in higher costs in the future for everything from food to insurance.  This way, you do not get caught in a trap of overspending and find yourself accumulating debt to keep your cash flow even.

The impact of COVID-19 has not been fully realized and probably will not be for many years. Your best bet is to approach your financial life with a critical eye that is realistic and conservative. While global pandemics do not happen often, economic realities, such as recessions and inflation impact the success of our planning.

Planning is important. It lays out your critical thinking about your values and time horizons.

Consider these next steps:

  1. Think about the impact of COVID-19 on you, your family, and your finances.
  2. Assess where you are now and whether you are moving in the right direction.
  3. Have conversations with all stakeholders about the current state of financial affairs.
  4. Work with team of professionals who have your best interest to help guide you.
  5. Do not underestimate the emotional impact of the pandemic on your thinking and planning for the future.