When the coronavirus pandemic hit the United States, the lives of many were quickly turned upside down. Many have now suffered personal financial disasters due to the loss of jobs and paychecks.
Willow’s finance analyst, Vera Gibbons, says the pandemic is an example of the unexpected.
"I think the big takeaway from COVID-19 is the value of proper planning," Gibbons said.
Gibbons says there are a number of financial lessons to learn from this pandemic, chief among them: you must always have an emergency fund.
"So many Americans don't have them," Gibbons said. "This is an emergency, and without that emergency fund, Americans are going to be forced to tap other accounts, take out a loan, a payday loan, which is a big no-no, so without that emergency fund, people are in a very tough position."
If you don't have an emergency fund to cover your expenses for a few months, start one as soon as you can, Gibbons suggests. Divert money into that account whenever possible, and if you already have one, continue to beef it up.
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Gibbins says now is the time to revisit your family's budget. Take the money you would have been using on commuting costs, dry cleaning, and entertainment, and put it in a place where it can grow, she says.
"If you are fearful of losing your job, or if you already had a pay cut by 20%, you should right off the bat reduce your spending by 20%, if not more than that," Gibbons said. "If you were living above your means prior to COVID-19, now is the time to reign in your spending big time."
Gibbons also advises separating essential from non-essential spending to get rid of the things you probably don't need.
"We are hearing anecdotally that people are buying things just for comfort sake," Gibbons said. "They want to feel better in these troubled times, so they are buying things like slippers, blankets, fuzzy shoes. It feels better at the time they are making these purchases, the problem is when you actually get that credit card."
Another financial lesson learned from the pandemic: don't overlook the importance of estate planning and investing in your retirement. Gibbons says continue to contribute to your 401K, and if you have to borrow from it, don't drain it.
"People who have been sitting around thinking, 'I should do my will eventually,'" Gibbons said. "Eventually (it) came fast and furiously, so you have millions of Americans updating their wills, updating the estate planning, doing the end of life directives. They are really taking this to a level they should have taken a while ago."
