Welcome to a new year! Wait, does this mean we can erase 2020 from our memory bank and just start fresh as if nothing ever happened? If only things were that simple. 2020 wreaked havoc on our jobs, our lifestyles, and our finances. We’re now left with the aftermath, and current-math, of a pandemic. Moving forward is not without its challenges, but at least we have 2020 vision (sorry, couldn’t resist the pun!).
Taking a moment to reflect on the past year, what did 2020 teach us about money? Here are three takeaways:
Have an emergency fund. According to a MagnifyMoney survey, over 4 in 10 people tapped into their emergency cash during the pandemic. With so many unemployed, and tighter restrictions on borrowing money, having an emergency fund puts people more at ease when times are tough. That also means when times are good, we should focus on building and maintaining our emergency fund. Between three to six months is the general rule of thumb, up to twelve months if your situation warrants it.
Keep it simple. In 2020, we revisited needs vs. wants with intensity. Everyone shed junk from our homes during quarantine, companies moved to less expensive states, and many folks downsized to smaller places or moved in with the parents. Although we will eventually go back to vacations and luxury things, we may be willing to sacrifice a bit more the next time around. Budget for the essentials, and perhaps shed some nice-to-have, but unnecessary expenses.
Investors, don’t panic. If you held investments in March 2020, your investments probably took a big dip. Despite the tumble, if you had held onto your investments from January 1 to December 31, 2020, you likely ended the year with a gain. Several stock market indices actually went up in the year of 2020 — the Dow with 7.3% gain and the S&P 500 with 16.3% gain. Here’s a good lesson not to make any sudden moves and stay invested for the long-term.
These lessons don’t just apply to adults. As with the Silent Generation, who was born in or around the Great Depression, children are watching how we navigate the pandemic. We will shape how they behave for the rest of their lives, giving us one more reason to focus on how we handle money this year and beyond.
If getting your personal finances is a priority in 2021 or you want to keep setting an example for future generations, then follow along each month as we dive deeper into topics like savings, employment, investing, and more. At the end of each post, we invite you to answer one question, and as always, your ideas and suggestions are welcome!
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