How We Save Money Has Changed Forever
When the virus came to America, it landed in a country where millions of people had no savings at all and many millions more had savings that were painfully inadequate. But others had followed the standard financial industry advice, opened a retirement account, saved money and built an emergency fund for a rainy day. The rainy day came in the form of a yearlong pandemic that exposed gaping holes in the guidance that had long been taken as gospel. GOBankingRates talked to experts to find out what was learned along the way.
Suddenly, the Old Rules Felt… Old
Before the virus, financial experts had been passing around the same boilerplate savings advice for years. Set aside 10% of your check every month. Max out the company match portion of your 401(k). Build an emergency fund that can float you for three to six months. Not everything went out the window — the 401(k) part, for example, never stopped making sense. But lots of other pre-pandemic strategies failed under fire.
“One thing that was learned about finances during the pandemic is that we should be careful about phrases that tell us what we ‘should’ do,” said Alexa Serrano, banking editor for Finder. “Instead of focusing on how much you should save every month according to standards, focus on what you can save. This is especially true for those who are living paycheck to paycheck.”
Families Who Plan Together Persevere Together
Unlike regular recessions, the virus literally trapped people together for months. Couples and families were much more likely to prevent financial friction at home when they hashed out an agreed-upon savings strategy. The virus revealed that family financial planning is an absolute must.
“Couples should have a joint emergency fund,” said Adam Kol, a tax attorney, financial advisor, certified mediator and founder of CouplesFinancialCoach.com. “Especially if they have some separate accounts. Then they could consider individual emergency funds, as well. Couples need to get on the same page about their overall financial plan and goals.”
Multiple Revenue Streams Offer More Security Than Savings
The trend toward gig work was already clear, but the virus transformed alternative income streams from gravy on the side to a make-or-break necessity for millions. Those who had a side hustle fared much better than the many who lost their only revenue stream when they were laid off or furloughed. For many financial experts, the lesson was clear — side gigging is the new saving.
“Moving forward, people should put less of an emphasis on how much they have saved and focus more on generating another stream of income,” said Omer Reiner, licensed realtor and president of real estate investment firm FL Cash Home Buyers. “This will be far more efficient at protecting people from a financial emergency than savings will.”
People Reconsidered How — and Why — They Save For College
The sky-high cost of tuition and the suffocating burden of student debt forced post-virus America to rethink the entire approach to how they save and pay for college — and if that’s even the wisest path at all.
“Reframe your approach to or even the need for a college education,” said Garth Hassel, RICP, CLTC, and author of “Keep Your Life: Plan Your Endgame So Loved Ones Stay Loved Ones.”
He recommends budgeting for the first two years at a local community college because credits are cheaper and housing is free — but only once you’re sure it’s even worth the expense in the first place. If not, “See what high-paying trades your kids could learn so that in two years they are out of the house and self-sufficient,” Hassel said.
An Underdog Retirement Vehicle Earned a Second Look
Finally, the pandemic forced a change in how people think about saving for retirement — not the strategy, but the investment vehicle. Millennials were sweet on Roth IRAs before the pandemic, according to CNBC, but the virus put Roth IRAs in the spotlight for everyone. They’re funded with post-tax contributions, but they’re much more flexible in terms of early withdrawals than more popular account types. The millennials who had Roth IRAs enjoyed an extra layer of accessible, penalty-free cash to cushion them during the crisis. If it had been a 401(k) or traditional IRA, they wouldn’t have been able to touch it.
“If one has a Roth IRA, one can withdraw the original contribution amounts without penalty or taxation,” said Rob Drury, executive director of the Association of Christian Financial Advisors. “In fact, if doing so can be done consistent with one’s overall retirement savings goals, I recommend that a Roth IRA account be set aside in cash or cash equivalents for this purpose.”
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