COVID-19’s rapid spread and the following economic havoc are vivid reminders of how unpredictable and volatile the broad economy — and each family’s personal finances — can be. This article discusses four financial lessons from the pandemic.
The onset of the COVID-19 pandemic in March 2020 disrupted the personal finances of many families who were negatively affected by job losses, reduced income, sickness,and other challenges. This included families across the economic spectrum and workers in a wide range of both blue- and white-collar industries.
The virus’s rapid and continued spread — and the following economic changes— are vivid reminders of how vulnerable and unpredictable your family’s personal finances may be. Now, almost two years later, the pandemic’s impact persists. Here are four basic lessons to keep in mind:
1. Be aware of your financial position. Do you have a budget? Have you tracked your expenditures? What are your fixed obligations? Do you pay your credit card balances every month? What is your guilty pleasure and how much does it cost monthly? Being aware improves your response time and financial outcome.
2. Don’t live above your means. In some ways, this is even more important for high earners than it is for those with more modest incomes. Those with higher incomes sometimes overcommit themselves financially by living a lavish lifestyle.
For example, they may buy large homes in high-end neighborhoods or buy expensive luxury automobiles which stretch their finances. Then, if they experience a financial emergency (job loss or reduced work hours), they’re suddenly unable to afford the lifestyle or remain current on their fixed obligations.
3. Build up an adequate emergency savings fund. By living below your means, you may have extra money each month to build up an emergency savings fund. While every situation is different, many financial experts recommend saving between three- to six-months’ worth of living expenses in an emergency fund.
Emergency savings should generally be kept in a liquid savings or money market account. Such an account probably won’t generate a high return, but the money will be relatively safe and easily accessible if you need it for an emergency. Search online to find an account that offers the highest yield along with maximum liquidity.
4. Continuously map out a flexible career path. The time to make career contingency plans is before the global economy disruptions eliminate millions of jobs. As the COVID-19 pandemic has shown, what may appear to be a secure job and career can vanish in the blink of an eye.
Some entrepreneurial individuals have turned career setbacks into opportunities by going back to school or starting new businesses. Others have left their jobs to start freelancing and consulting businesses, using their marketable skills and industry contacts to carve out profitable niches for themselves as self-employed professionals. This has driven a phenomenon known as “the Great Resignation.”
Maybe you’ve seriously reconsidered your employment situation in recent months. It’s to everyone’s benefit to look carefully at his or her career path and head in a direction that both inspires and offers financial security.
The pandemic has been called a once-in-a-century event. Unfortunately, it feels to many of us as if it’s already lasted a century. Keep these four financial lessons in mind as you continue to adopt to forthcoming challenges and opportunities.
The HoganTaylor Tax Practice
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INFORMATIONAL PURPOSE ONLY. This content is for informational purposes only. This content does not constitute professional advice and should not be relied upon by you or any third party, including to operate or promote your business, secure financing or capital in any form, obtain any regulatory or governmental approvals, or otherwise be used in connection with procuring services or other benefits from any entity. Before making any decision or taking any action, you should consult with professional advisors.
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