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The COVID-19 pandemic will be a time that no one forgets. Not only did it put our entire society in a situation they were not prepared to deal with, but it was also emotionally and financially draining as well.
I can remember in early 2020 talking to one of my friends about our investments. The stock market had been riding high on a decade-long bull since the Great Recession, and it didn’t seem like things would be slowing down any time soon.
One of my friends asked if I thought there was any chance of us heading into another recession and I was optimistic in my response, “Not unless some kind of major global disaster happens first.” Who knew those words would come back to bite me in less than two months later.
After 15 months since the world was turned upside down, I can definitely say that I’ve learned a lot of new things – in particular when it comes to money.
In this post, I’d like to share how we can recover from the financial devastation of COVID-19 and use this experience with COVID-19 to become more resilient and grow.
How COVID Affected American Finances
For most people, 2020 started off just like any other year. I remember going to my job and listening to all of the higher-ups talk about the growth they expected to see over the next few years. But then that all seemed to come to an abrupt halt.
By March 2020, COVID-19 cases were springing up everywhere. No one really knew what this virus was or how bad it was going to be. But one they did know was that it was an airborne disease that could be mitigated if people stayed away from each other.
In what felt like an overnight turn of events, every state went into its own self-imposed lockdown. Businesses closed their doors and were temporarily banned from servicing customers in person.
That had a dramatic and immediate effect on the economy in a few big ways.
When a small business or restaurant can no longer operate, that means they also can’t pay their employees.
And so it wasn’t long before millions of working Americans found themselves laid off and needing to file for unemployment.
According to the U.S. Bureau of Labor, unemployment dramatically spiked to 14.7 percent by April 2020. That was a 10.3 percent increase from the previous month and the highest month-over-month increase in history (for data dating back to January 1948).
Everyone I knew was fearful for their job. I had friends and friends of friends who suddenly found themselves out of work without any prospects of when they would return. Some were laid off permanently.
Even my employer decided to institute a mandatory two weeks of unpaid time off for all the employees. That made me nervous because if they reacted to the situation that quickly, who knew how much more income I’d be losing over the next few months.
Retirement Savings Evaporated
With businesses closing and people everywhere filing for unemployment, I knew right away that this was going to send the stock market into a tailspin. And unfortunately, I was right.
The Dow Jones plunged by 37 percent within the first month. That means anyone who was either saving for retirement or already retired just saw their nest egg drop by approximately 37 percent.
To put that in perspective, if you had saved up $1 million, that’s like seeing $370,000 disappear into thin air.
I can only imagine how terrified I would feel if I was in my first year of retirement and saw such a huge chunk of my life savings evaporate before my eyes.
Remember that was only the first month and with all of the uncertainty surrounding COVID, it was unclear how far down we’d be going before we hit the bottom.
Long-Term Goals Became More Distant
For people who were already financially stressed, unemployment and market declines made a bad situation worse. Some had to stop paying their rent or loans. Others ended up taking on more debt to try to make ends meet.
According to a Pew survey, 44 percent of the respondents think it will take them three or more years to get back to where they pre-COVID.
10 percent of them don’t think their finances will ever recover. This was the sentiment felt particularly by people under the age of 30, lower-income adults, Hispanic Americans, and Asian Americans.
Even with optimism about vaccines and enormous stimulus packages from the government, those who were impacted financially had to put their goals and dreams on hold. And unfortunately, things may stay that way for longer than we think.
Why So Many Americans Were Not Prepared for a Financial Disaster
2020 was not the first time the U.S. has seen hard times. Yet, many Americans were caught off guard financially when the pandemic brought down the economy.
This begs the question: Why weren’t we better prepared?
Living Paycheck to Paycheck
In some households, money is simply always an issue. In a survey conducted by CNBC, 53 percent of Americans were already living paycheck to paycheck before the pandemic started. Not long after, that number jumped to 63 percent.
This could be for any number of reasons ranging from how people manage their finances to events that are beyond their control.
Regardless of why, when something finally does happen, those problems with money are just going to become more difficult to deal with.
No Emergency Savings
Financial gurus and experts have been preaching for years about the need to have a decent chunk of cash set aside for a rainy day. Yet, it seems as though not many people are following that recommendation.
According to a study from Bankrate, only 41 percent of Americans said before the pandemic that they would be able to cover a $1,000 emergency with their savings. A year later, the same survey found that this number had decreased to 39 percent.
Before COVID, I’ve worked with plenty of people over the years who have had to forgo medical procedures or car repairs because they simply didn’t have the cash to afford them.
If they really needed to make the purchase, they would just resort to putting the expense on their credit card and paying it off little by little.
I can only imagine how much worse the pandemic made it for people like this. This only highlights the vulnerability we all face when we don’t have the financial reserves to deal with the hardships that follow times of crisis.
How to Protect Your Money During a Pandemic
Bad things are going to happen. Whether it’s a pandemic, war, tense politics, or some other social distribution, the economy is fickle and it’s going to affect your bottom line.
Thankfully, there are steps you can take to minimize the impact felt by these events. Here are a few solid strategies to ensure your household finances are bullet-proof.
Get Your Financial House is in Order
I’ve had a long-standing belief that every family should have their own CFO (chief financial officer), just like a successful business would have. It’s this person’s responsibility to champion the money management for the household and ensure that the finances are in order.
Now, after COVID, I can appreciate this mantra more than ever.
When I found out our employer was implementing two weeks of mandatory unpaid time off, I was scared. But ultimately I didn’t lose confidence in our finances because I already knew our budget was in great shape.
I had already planned out our expenses earlier that year, and that gave me the ability to see on paper how long we’d be able to fully cover them.
Know Which Expenses Are Expendable
Speaking of expenses, because we’ve been budgeting for years, it’s pretty clear which of our expenses are a top priority and which ones can be put on the back burner. And when the pandemic hit, it was time to put that knowledge to the test.
We had previously made a goal that we wanted to get some landscaping done and had even planned to set some money aside in our budget to cover it. However, when the pandemic hit and we were unsure what that would mean for our jobs, our plans had to be shelved in case we needed to tap those funds.
When you know which of your expenses you can be turned on and off at will, it’s like having an extra layer of security. Rather than having to add to your credit card balance, you can have a short list of expenses that can be paused at will allowing your income to stretch.
Have Your Emergency Fund Ready
If there’s one excuse I’ve heard from people over the years about why they don’t think they need to have an emergency fund, it’s because they felt like they’d never be in a position where they’d be unemployed.
2020 taught us all a valuable lesson that not everyone’s job is “essential” and that we are all susceptible to joining the unemployment line.
This is exactly why you need to have an emergency fund ready to go at all times. Your emergency fund is supposed to be a reserve of money that you can use for the next 3 to 6 months in case your income was suddenly cut off.
That way you can continue your standard of living without having to miss payments or take on any unnecessary debt.
Have a Recession-Proof Job
If you’re one of the people who was laid off indefinitely during the pandemic (such as those in the restaurant and retail industries), then 2020 might have you rethinking your career choice. There are lots of jobs that happen to be more recession-proof than others.
Consider the following professions:
- Healthcare workers
- IT professionals
- Utility workers
If one of these fields sounds interesting to you, then think strategically about how you can make a change. Perhaps you could go back to school, get a new or different degree, and then take a leap into potentially safer territory.
Why Good Money Management and Investing is More Important Than Ever
If there’s one takeaway we can all learn from this pandemic, it’s that having solid finance skills can make you more robust – especially during hard times. Here are some important aspects to remember as you’re trying to improve your personal finance skills.
The Time to Develop Good Habits is Now
The middle of a financial crisis is not the time to start changing your ways. You need to start practicing good financial responsibility during the good times so that you’re better prepared for the bad times.
The right kind of habits to develop would be things like budgeting your money, paying off your debts, and prioritizing your goals.
Get in a routine of checking up on your progress weekly, and you’ll form a structure for your process that will withstand any future disaster that comes your way.
The Fundamentals Don’t Change
Whether it’s a pandemic, recession, or any other hardship, good financial fundamentals don’t change. They’re reliable no matter what the circumstance, and you can trust them to help you make the right decision so that you don’t regret your actions later on.
I learned my lesson during the Great Recession that you don’t stop contributing your retirement funds just because the markets are down. Since the sage advice is to “buy low, sell high”, a depressed market is exactly the time you want to be investing your money since you’ll be buying stocks at a discount.
This time around, I made sure not to change a thing about my retirement contributions throughout the pandemic.
As a result, I ended up buying more shares of funds which will only add to my bottom line as the markets continue to return to normal.
Best Chance of Still Making Your Goals
Perhaps the greatest reason to sharpen your money management and investment skills is that they will give you the greatest chance of reaching your long-term goals.
Sure, the pandemic set many people back financially. But the great thing about money is that every day is a new chance to make more. Between investment appreciation and the flexibility to adjust your budget as needed, you’ll have the ability to adapt and overcome.
How People Can Build Back Up Their Wealth and Recover After COVID
If you got yourself into debt or had to use some of your savings to cover a financial setback, then don’t be worried. There are plenty of opportunities to get your finances back up to where they belong.
Contribute to Your Tax-Advantaged Retirement Plans
Tax-advantaged retirement plans like your 401k or IRA can give you an edge over traditional savings because you not only get to avoid paying taxes on your contributions, but they also grow tax-deferred.
That means keeping 20-30 percent more of your money (depending on your tax bracket).
If you’re not doing so already, contribute as much to your 401k as you need to get your full employer matching. These are the contributions your employer kicks in as an incentive to get people to participate.
If you’re not getting the full amount, it’s like leaving free money on the table.
Save With a Purpose
Something that’s always helped me to be a better saver is being very intentional with where my money is going and what it will be used for. The way I do this is to make a list of my financial goals and then assign actions to each of them.
Some good financial goals to conquer might be things like
- Increasing your retirement savings
- Building up your emergency fund
- Putting more money towards debt that you’d like to eliminate
- Adding to a down payment for a new house or vehicle you’re planning to purchase
The problem for many people (including myself in the past) is that if you don’t assign a purpose to “why” you’re saving, then it’s just going to be this ambiguous goal where it doesn’t matter if you succeed or not.
By clearly stating what your goal is, how much you’d like to save towards it, and how much you expect to have in the future, you’re going to be much more deliberate as well as disciplined.
Take Up a Side Hustle
When my employer announced that there would be mandatory unpaid time off for all employees, my mind quickly went into “worst-case scenario mode”. I feared that if things got worse, I might not have a job in the next 6 months.
It was time to take action. I had been dabbling with side hustles for quite a few years, but never really put my all into it. I immediately began signing myself up to do specific side jobs that I thought I would be good at, and I found my niche with freelance writing.
Whether your savings have taken a hit due to the pandemic or you’re just looking to add a little extra income on top of what you’re already making from your job already, a side hustle is a great solution. There are literally unlimited ways to turn your talents and spare time into cold hard cash.
The great thing about side hustles is that most of them can be done on your schedule as well as on your terms. You can work as many or as few hours as you’d like, and you may even be able to command a pay rate that’s higher than you’re earning at your real job.
If you’re handy with the Internet or a computer, many of the most popular side hustles don’t even require you to leave your home. You can pour yourself a cup of coffee and get to work right from your laptop.
There are a multitude of places you can go to find your first side hustle. Upwork and Fiverr are two great places to get started.
Start by getting to know what customers want and building a good rapport. Work towards making an extra $100 per month, and then step that up to $200 or even $500 per month.
If you keep at it and continue to take care of your clients, it won’t be long before you’re adding an extra four figures to your bottom line regularly.
The Bottom Line
The COVID-19 pandemic was a trying time for many American families financially. Between businesses getting abruptly shut down, rampant unemployment, and a crashing stock market, many people saw their financial futures clouded with a shroud of uncertainty.
What we can learn from this situation is that the time to start preparing for the next financial disaster is now.
The sooner we can stop living paycheck to paycheck, get our financial houses in order, rethink our careers, and work towards having our emergency funds ready to go, the better off we’ll all be.
Above all, the best way to be resilient in anything life throws you is to always be practicing good money habits. Make a budget, prioritize your financial goals, and stay the course when it comes to investing and planning for the future.
If your savings were hit hard by the pandemic, then don’t panic. You can build them back up by contributing to your retirement plan, giving your savings a purpose, and taking up a side hustle to make some extra cash.
Not only will this help restore your finances to the way they were before COVID, but it will also set you on a course that will one day secure your financial freedom.
- How to Protect Your Retirement Savings from a Stock Market Crash
- The Ultimate Guide to Savings: How to Stop Spending and Start Saving
- Here’s How Big Your Emergency Fund Should Be & How You Should Start Saving