The COVID-19 pandemic challenged everything we thought to be stable, including historically successful financial strategies. When tragedy struck, these methods were not able to resist the damage the pandemic caused, leaving many people in dire straits. GOBankingRates talked to several financial experts about how we can revise our practices around saving, investing and retirement so they’ll be able to withstand the worst of circumstances.
COVID’s Financial Impact After 1 Year: See All Our Coverage
Create Multiple Streams of Income
Many people sought unemployment benefits after COVID-19 hit. Though unemployment benefits can sustain you for a little while, there’s a limited amount of time you can rely on them. They can also be significantly less than what you were earning at your job. If you have the opportunity, it’s best to always have more than one source of income. That way, if one stream of cash is shut off, you don’t need to turn to unemployment benefits to survive.
Scott Nelson, CEO of MoneyNerd , adds that diversifying income can even be more beneficial than being frugal. “The biggest misunderstanding in personal finance is that scrounging pennies will never be more valuable than earning them,” Nelson said. “The true key to financial freedom is focusing on growth, not trimming. The reason earning is so much more important than being frugal is because financial growth is exponential, whereas there will always be a cap to how much you can save from being cheap.”
Similar to creating multiple streams of income, you want to be depositing your money in a variety of places to ensure growth. As we saw in 2020, the stock market is not always a steady or certain investment, so anyone who made 100% of their investments in stocks was bound to lose money. Conversely, if you spread your investment money around, there’s always an opportunity to make money.
If you aren’t already investing, Haley Tolitsky, a certified financial planner, says you should make it a personal goal to talk to a financial expert to create a diverse portfolio. “The best time to start investing is NOW,” Tolitsky said. “You cannot time the market, and the earlier you invest, the more time your money has to grow. Set up automatic monthly contributions to your investment account(s) to make the process easy.”
Increase the Amount in Your Emergency Fund
The gold standard for a rainy day fund was typically 3-6 months worth of income. The Coronavirus showed us that amount of money goes pretty fast in severe conditions. That’s because that figure was based on the average time to find a job, which used to be 3 months. After the massive layoffs from last year, however, that timeframe has changed and time between jobs can now last up to a year. Consequently, DotCom Dollar CEO Allan Borch recommended doubling or tripling the ideal amount of money in your emergency fund to prepare for the worst. “Filling your emergency fund with the worth of your entire year’s income will give you a wider allowance of time to find a new job in any case you find yourself unemployed,” he said.
Take Advantage of Flexible Work Conditions
One of the many ramifications of a slowed economy is the possibility of delayed retirement. Some people are worried that because they weren’t working or weren’t contributing to a 401K during 2020, they might have to put off retiring. However, if you have secured a job where working from home is an option, there might be a workaround. “With more opportunities than ever to work from home and flexibility in the workplace, many individuals may consider working longer, at least part-time, to continue to fund their retirement,” Tolitsky said. If you’re willing and able to work longer hours now to save more for retirement, you might save years in the long run.
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