Six financial lessons that we shouldn’t forget as stay-at-home orders are lifted.
Has COVID-19 upended your day-to-day life? It certainly upended mine, and caused us to shift the ways we do things at Wealthy Habits. Some of the changes we’ve made have turned out to be good changes, such as adding virtual financial literacy summer camps and programs online, in addition to our in-person camps in Atlanta, which will be limited this year.
It’s probably going way too far to suggest that we all turn these pandemic lemons into lemonade. But for many of us, this major life disruption has given us time and room to reassess some of our not-so-good habits and practices.
Financial habits are a good example.
Six Financial Lessons Learned from COVID-19
- Emergency funds are more important than the “things you think you need.” Most financial experts recommend that you have enough money in an emergency fund to cover three to six months of expenses. For many individuals and families, that feels impossible. In fact, according to the Motley Fool, almost half of Americans don’t have enough money in their emergency savings to get through the ongoing COVID-19 crisis.So here’s a reminder we all need to hear again: Funding an emergency account will always be more important than almost every single thing you think you need. Now is the time to take a long, hard look at each purchase and be honest with yourself – Is it a need or a want? If you’re not sure, it’s probably a want.
- Not shopping at the mall for a long period of time is possible. It’s also possible to not shop at big box stores and specialty retailers for long periods of time. Granted, no one wants to see these places go out of business. But if we’re talking about building wealthy habits, spending less time visiting stores, in person or online, will help you avoid impulse purchases on “things you think you need.”
- Be thankful for your employment. Some people love their jobs; for others, their job is just a paycheck. But the widespread and painful job losses that have occurred in the hospitality, health care, travel, retail and restaurant industries during the COVID-19 outbreak should remind us all to be thankful for being employed and to step up and do the best job we can.
- Do whatever you can to make sure your job is more secure by learning and taking initiative, even if a request isn’t “your job.” Flexibility will serve you well at work and in life. If you seek out new challenges, take classes to expand your knowledge and skills, and be willing take on new assignments, your efforts will likely be noticed and rewarded.Flexibility has been essential during the pandemic, and has meant survival for some businesses and continued employment for their teams. I am proud of my team; their flexibility has allowed nine interns the opportunity to join us for the summer.
- Fast falling markets have always come back, so don’t panic. We touched on this one in a blog article a few weeks ago. The most successful investors are those who can withstand fear the longest and keep their focus on the future.I encourage you to go back and read the whole article. If not, here is an important snippet: If you are already invested, take a deep breath, or 10, and remind yourself that prices will rise again as the market returns to normal.
- Free family time is just as, if not more, important than pricey outings (dinners out, trips, etc.). If you have kids, following those stay-at-home orders meant a lot more together time as a family. Soccer games and post-game team dinners were out, as were weekends at the movies or out of town.This was a good thing for most of us as we were forced to figure out how to live together and make our own fun. Yes, we probably spent more on groceries but I promise it wasn’t equivalent to the money that might have been spent eating out. Maybe instead of an expensive night at the ball game we dusted off an old board game and had just as much fun reconnecting. And that kind of fun is much easier on the budget. Don’t let all those activities end as things open up.
It’s been said that it takes as little as 66 days for a new habit to take hold. Most of us have cleared that point in the pandemic, which means these COVID-19 financial lessons have started to be ingrained in our lives. Don’t let them slip away easily.
This summer, we’ll be teaching these financial literacy lessons in online camps and programs as well as in-person summer camps. To learn more, check out the programs listing at WealthyHabits.org.
Setting personal goals is very similar to writing a business plan – both can help ensure success in the future.
Setting goals is something that lots of people talk about but few really take the time to do, at least in a formal way.
Sure, you might jot down your goals for the year – lose 10 pounds, find a new job, save for a trip to Italy.
But just writing down a goal rarely helps you achieve it.
Building lists of tasks to reach those goals can help, and many people take that next step. But lists on their own won’t get you there, and for some people they have drawbacks. If you’re a person who gets so focused on tackling each item on your list, you may lose sight of the big picture – the goal itself. And you might miss opportunities that create a better path to your goal.
But when you write down your goals, make lists, compile them into a plan AND shift your mindset, the results can be life-changing.
Businesses take time annually to set goals and develop a plan to reach them. Without clear direction – and a formal plan – a business is unlikely to succeed, even if it is offering a great product or innovative service.
Need proof? Data shows that almost 20 percent of small businesses fail in their first year? It’s safe to say that many of those failures can be attributed to lack of direction.
By five years, about half have ceased operations.
For more insight on setting goals, I talked to Ginger Gallagher, who is the president of Vela Agency in Winston-Salem, NC. Ginger is also a very involved member of the Jonathan D. Rosen Family Foundation’s board of trustees.
Here’s what Ginger had to say about setting goals for herself and her business.
“The old saying that ‘What Gets Measured Gets Done’ really applies here. It’s so easy to get caught up in the day-to-day minutiae and lose sight of the big picture,” Ginger says. “That’s why planning for business, or any goal really, improves the odds of achieving that goal.
“This applies to any type of goal, whether it’s to grow your business, get an education, save money or conquer a challenge. Don’t get myopic, though. Be stubborn about your goals but be flexible about your methods.”
Of course, if you’ve never been one to set goals, this is a good time to start. The pandemic has forced many of us to make decisions that will change the course of our lives.
Learn what history can tell us about “buy low, sell high” as an investment strategy.
Investment language can be off-putting to most of us – ETFs, IRAs and UGMA might as well be alphabet soup for people who want to build their financial literacy.
But “Buy Low, Sell High”? That’s relatively easy to understand. In a nutshell, it’s a long-standing idea that people should purchase shares of stocks when their price is low (a Bear Market) and sell them when their value increases (a Bull Market).
Then why aren’t more people successful at it? Here are a few reasons.
1. We’re an emotional species. When it comes to our finances, decision making is often driven by two fundamental factors: greed and fear. As humans, our emotions often overtake our logic, causing investment behavior that is less than rational.
2. We don’t like being left out. When we find ourselves on the sidelines watching others profit, we reach a point where we must make an investment, buy a piece of real estate, or deploy some cash to “get in on the action”.
As we invest at or near a stock’s peak prices, we find ourselves excited to finally be in the investment game. Our greed takes over and we tell ourselves that the good times won’t end. We take comfort in yesterday’s news but lack a clear vision of what tomorrow may bring.
3. Our memories can be short. Every decade or so brings one or a series of economic upswings: the dot-com bubble of the late 1990s, the housing market boom of the 2000s, the economic expansion of the pre-pandemic period beginning in 2010. Then, there’s the inevitable economic downturn because cycles are just that – cyclical.
4. We let the fear take over. As we ride the market down, we allow our fear of losing money take over. Consider the bursting of the dot-com bubble, the great recession, and the coronavirus pandemic. We shift to a mindset of “it can only get worse” and that overrides our greed. Driven by fear, we sell and hope to have something left at the end.
5. We repeat past mistakes. Just like before, we find ourselves waiting to invest. Sadly, the opportunity passes us by until we just can’t sit on the sidelines anymore and we repeat the cycle. Once again, we find ourselves investing near the peak, having forgotten the last experience.
It’s enough to leave you dizzy. That said, if you can’t stomach the stock market roller coaster, don’t push yourself to ride it.
If you are already invested, take a deep breath or 10 and remind yourself that prices will rise again as the market returns to normal. If there are stocks you would have considered purchasing before the downturn in companies that align with your values AND you have the money to invest, go ahead and purchase some shares. Investing is a wealthy habit and your focus needs to be on the long-term. No one can predict when prices will rise. But know that they will eventually.
At Wealthy Habits, we teach kids financial literacy lessons on investing, savings and more. Parents can find blog articles and other financial education resources on our website. We also offer low-cost day camps, summer camps and teacher training programs in the metro Atlanta area on topics such as saving for college, investing and more.
Every day is financial literacy day at Wealthy Habits, but April is officially National Financial Literacy Month. With many schools and businesses closed and uncertainty over when they’ll reopen, we’ve put together a list of things to review to keep your finances in order.
To make sure you won’t put off the items on the list, we’ve focused on the ones that could potentially help you spend less and save more.
That got your attention, didn’t it?
Of course, we always advise that you have a clear understanding of your financial situation and do what’s best for your personal situation before making any changes to the items on this list.
Your annual personal finance review should include:
1. Home and auto insurance policies. Most insurance companies are willing to show you how you can save money on auto and home insurance, especially if it helps them earn your business. For example,
- Auto Insurance. Some companies will give you a 10 percent discount if you take a safe driving class.
- Homeowners insurance. There are many ways to lower the cost of homeowners’ insurance, from making sure you understand policy terms to improving home security. Even improving your credit history can help. You can find these and other ideas on the website for the Insurance Information Institute.
2. Life Insurance coverage amount. Let’s face it, no one lives forever and life insurance can protect your family if the inevitable happens before you expect it. Life insurance costs less to purchase when you’re young, but you need to reevaluate your policy annually because monthly premiums can decrease over time. Life situations can change too; if you add a child or your lifestyle changes substantially, you may need to reevaluate your benefit amount.
3. Monthly or recurring memberships. At least once a year, revisit all the monthly memberships or other recurring fees you pay. That means reviewing your bank and credit card statements to identify charges for memberships you no longer or rarely use. $100 or $200 a month might not get your attention, but those fees add up quickly when you multiply them by 12.
4. Your company’s benefits plan. Annual enrollment meetings can be dull. But if you take the time to understand what your company is offering, you’re less likely to leave money on the table, which is what happens when you don’t make full use of your benefits. Here are the big ones that should be on your checklist for an annual review.
- Retirement contributions. If you aren’t contributing the amount your employer matches, you are basically not accepting a raise. Although it can feel impossible to maximize your contribution to your employer’s matching limit, find a way to do it. Your pre-tax savings, together with your employer’s match, will add up faster than you think.
- Retirement (tax-deferred), health saving and flexible spending accounts. Contributions to these accounts are tax-free, which makes them great opportunities to save while reducing your tax liability. (Contributions are deducted before federal income tax withholdings are calculated, which reduces your taxable wages. This helps reduce the amount of federal income, payroll and FICA taxes you pay.) It is always a great idea to talk to your accountant about ways you can maximize your options.
5. Services you pay for. The goal here is to look for comparable but less expensive options. Take the time to review services such as:
- Investment accounts. Fees for investment accounts can vary widely. Depending on your number of transactions, the amount you have invested and the degree you want to be involved with investment decisions, you may find that no-fee or low-fee accounts meet your needs.
- Bank accounts. Bank fees can be a drain on your checking account. Review several months of account transactions to find any fees you may have overlooked. Then examine disclosure forms to see if there are things you can do to waive fees – keeping a required minimum balance, signing up for direct deposit, etc.
- Household services. If you pay for ongoing alarm monitoring, yard care or HVAC maintenance, for example, you may be able to find a lower-cost provider. Talk to friends or neighbors for recommendations or ask your current providers if they are willing to match other providers’ prices or advertised specials.
The most important part of this process is to save or invest the savings you uncover. Set aside an equal amount to be automatically deposited in a savings or investment account. This isn’t free money – it’s money you found through hard work and diligence. Put it to better use. Your future self will thank you.
For more information about National Financial Literacy Month, sign up for one of the student and parent workshops we offer at Wealthy Habits.