Since March, the nation has been reeling from the impact of the COVID-19 pandemic. Millions of people lost their jobs, had their hours cut, or experienced drops in their income. Many families’ finances have been significantly affected by the coronavirus outbreak and are still struggling to recover.
As the nation starts to rebuild — and businesses begin to reopen — here are six lessons we learned during the pandemic that we should all keep in mind going forward.
1. You need a larger emergency fund
Before the pandemic, many financial experts said that an emergency fund of $1,000 was sufficient for most individuals. Others said that saving three months’ worth of expenses was enough.
If you followed that advice, you may have realized that the guidance left you unprepared to deal with such a serious catastrophe. If you lost your entire income overnight, you quickly exhausted your savings and were unable to pay your bills.
If the pandemic drained your savings account or if you never had an emergency fund in the first place, focus on building one from scratch once you’re steadily employed again. Aim to save at least six months’ worth of living expenses. That may sound impossible right now, but the important thing is to start saving and tuck money away consistently. Over time, you can achieve your goal.
2. Understand your loan protections
As we found out during the past few months, not all creditors are equal. While some creditors were willing to work with people struggling with their finances during the pandemic, others were not.
Federal student loans were eligible for the CARES Act, including 0% interest and automatic payment suspensions. Unfortunately, private student loans did not qualify for those benefits.
Some private student loan lenders workers with borrowers and allowed them to postpone their payments, but not all lenders were willing to do so.
The experience highlights how important it is to shop around and choose a lender that offers hardship programs and forbearance options. With ELFI, you may be eligible for up to 12 months of forbearance if you experience a financial hardship, such as a job loss or medical emergency.
3. Avoid the lifestyle creep
Before the pandemic hit, the economy was strong. Unemployment numbers were very low and credit was easy to get, so many people were inflating their lifestyle. Even high-earners were living paycheck to paycheck to live more lavish lifestyles than they could really afford. When things went south, people were left scrambling to make ends meet.
Living well within your means protects you from a recession and a bad economy. When you spend less than you make, you have more breathing room in your budget, and can weather bad times until things improve.
To avoid lifestyle inflation, create a budget and stick to it. When you get a raise, automatically deposit the difference in your paycheck into your savings account or make extra payments toward your student loans. That way, you won’t notice the extra money, but you’ll improve your net worth. Learn how to avoid the lifestyle creep here.
4. It’s wise to have multiple income streams
Many people lost their jobs, were furloughed, or had their hours reduced during the pandemic. With unemployment rates skyrocketing and many businesses shutting down, having multiple income streams is more important than ever.
When you have more than one source of income, you’re better able to handle emergencies. Even if you lose your job, you’ll at least have some money coming in to cover your most important bills. Having a side hustle can also help diversify your skill-set, making it easier to find another full-time job later on.
If you can, look for another source of income. You can pick up a side hustle, such as delivering groceries, pet-sitting, or renting out extra space. You can also offer freelancing or consulting services in your field.
5. Don’t try and time the market
When the pandemic occurred, the stock market plummeted. Many people panicked and sold their investments or raided their retirement plans. It turned out to be a costly mistake, as the stock market rebounded. It’s a key lesson: Don’t try and time the market.
The stock market has natural ebbs and flows, and will experience sharp periods of growth and recessions. Don’t panic and sell during those declines, and don’t try to buy only when you think it’s at its lowest.
Instead, keep your investments where they are, and continue making consistent contributions if you can. Over time, your money will steadily grow, and your patience will pay off. If you’re new to investing, you may want to check out these apps to get started..
6. Pay down high-interest debt
Having high-interest debt can be one of the biggest stressors when the economy is in decline. When your job is at risk and money is tight, your student loans and credit cards are the last thing you want to worry about when you need to pay rent and groceries.
To eliminate that stress, focus on paying down high-interest debt when things are relatively good. By paying off your debt, you’ll save money over time, and you’ll reduce your monthly expenses.
If you want to accelerate your student loan repayment, consider student loan refinancing. Especially if you have private student loans, refinancing your loans can help you get a lower interest rate and save money over time.
Use the student loan refinance calculator to find out how much you can save over the life of your repayment term.*
*Subject to credit approval. Terms and conditions apply.
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