By Rianka R. Dorsainvil, CFP® and Lazetta Rainey Braxton, MBA, CFP®
Many of us have waited to cross the threshold into 2021 -- where we could begin to say goodbye to this very challenging time.
Precious lives have been lost, and for many, livelihoods took a tremendous hit as well. Life is forcing us to reassess priorities.
With this new year, we’re finding ways to reflect on the lessons that we’ve been taught, and financial lessons are certainly at the top of a comprehensive list. As we find the right mix of nurturing relationships, improving our health, balancing our personal and professional lives, and more… there’s plenty of data on what 2020 taught us about our financial habits.
Many Americans tested the constraints of their safety net
We’ve been told time and time again to have six months of emergency savings stored for a rainy day, and due to unemployment many found themselves cashing in this year. Pre-pandemic the news was already grim in this area. Bankrate’s 2020 January Financial Security Index survey showed “just four in 10 U.S. adults (41 percent) would cover the cost of a $1,000 car repair or emergency room visit using savings. The findings echo what previous Bankrate studies and others — including the Federal Reserve and the Pew Charitable Trusts — have found about Americans’ lack of rainy-day savings.” For those whose safety net was left intact, it was a necessary reminder of why we save for a rainy day, and the opportunity to pat oneself on the back for implementing a sound financial strategy.
We saved, because we couldn’t spend
With nowhere to go, we trimmed our budgets enormously in the Spring, and the data proves it. According to Hal Bundrick, writer for Nerdwallet, “For years, Americans set aside 7%-8% of their income. In a knee-jerk reaction to COVID-19, people stashed cash at a historic level. According to the U.S. Bureau of Economic Analysis, in April 2020, the personal savings rate exploded to over 33%.” While this trend has likely ebbed as restrictions have changed and the holiday spending season approached, focusing on building up our savings became in vogue again, and we are so glad for it. Let’s continue to save as we evaluate smarter spending in the new year.
People figured out what was important to them
Whether we craved fresh air and wide open spaces, decided to permanently telework, or needed to close a literal gap between us and those we love… Americans made some major moves this year. According to Pew Research, “About a fifth of U.S. adults moved due to COVID-19 or know someone who did.” And there were lots of other important decisions to ponder like if we were committed to relationships, careers, or life trajectory. A year that forced us to confront fears like never before, also was a major catalyst for making us act on them. Let’s continue to assess what’s most important in our lives, not just our jobs or making money.
So, can we just take a moment to breathe?
Yes, and no. Alongside surviving this year, we’ve learned a lot about ourselves and how our good or bad financial habits have forced us to confront our fears.
With hope on the way, it’s a good idea to take a small break. But, don’t let too much time slip away! We know that time is money, and the longer you let your financial goals sit, the harder you have to work to realize your goals. Tell us, what did 2020 teach you about financial habits, and what are your focuses for this year?