Money Lessons – What 2020 taught us about money

While this year has not been easy, it has come to teach us many valuable lessons. I personally saw these difficult times as an opportunity for introspection. 2020 came to remind me the most valuable things in life are family, friends, and health. It reminded me that the most important things in life are not material possessions but moments. It is also important to think about what 2020 taught us about money. Here are a few things that I learned and hope to take with me even through the “better” years:

We always need a safety net

Yes, I am referring to your emergency fund! Covid-19 is the perfect example of why everyone needs an emergency fund regardless of your job experience, title, or salary. This year many people lost their jobs, were furloughed, had reduced hours, or were living in fear of any of these happening to them. No one was immune to the possibility of this happening to them as many businesses found a need to reduce costs to survive.

An emergency fund is meant to be used during times like this. Having 3-6 months of living expenses saved could have reduced the stress and anxiety that comes with losing a job. Some may have even realized that they may need more in their emergency fund to be truly stress free when a situation like this happens. It is important to remember that job losses and medical emergencies can happen even in the best of times. We always need to be financially prepared for this. Take some time to review your emergency fund and re-evaluate whether this will be good enough to weather the next storm because its better safe than sorry.

It is important to live within your means

“Living within your means” means that you spend less on your lifestyle than you are earning. Your means is your income and so that should be the threshold you use on your regular spending. Nowadays, it has become more common to live outside your means and spend more than your income with credit cards and loans. It is easy to fall for the buy now and pay later lifestyle. But this leads to paying more than things are worth when interest is included.

2020 came to show us that reckless spending can catch up with us during the worst of times.  Living within your means is being mindful of how you spend your hard-earned money and intentionally preventing debt. This year reminds us about the importance of reducing our spending on non-essentials so that we have financial flexibility during difficult times.

Be intentional with everything you do. Your future depends on it.

This is an important life lesson which also applies to personal finances. This means that the way we deal with our money today can make or break our financial future. Make it a goal to save during the good times so that you can financially handle the bad times. Although saving when we are well off can be challenging this is how wealth is built.

On the other hand, if you have debt accumulated, paying it off when things are going well can give you more options when things go wrong. If 2020 taught us anything about debt, it is that there are few things scarier than losing your income while having debts to pay off at the end of the month. Are  your daily money habits building wealth for your future self? If not do not worry because it is never too late to get started.

Another thing 2020 taught us about money is to be intentional where we spend our money. We saw many small businesses struggle, some even went out of business. While many big businesses moved forward with business as usual without stepping in when we needed them the most. 2020 is the year that we realized that where mattered more than ever. Going forward, who will we decide to fund? Big businesses who only care about the bottom line or the small businesses in our communities? At the end of the day each of us can decide who we fund.

Financials basics are the core of financial stability

2020 magnified the importance of following the financial basics. It reminded us that there are many things we already know but may not put into practice which can lead to financial vulnerability. Did 2020 find you following the financial basics or living paycheck to paycheck? Were you budgeting, saving, paying off debts and investing before 2020? If so, then 2020 might have been a small bump on the road. However, if you were previously living paycheck to paycheck then it could have been a big setback to your financial success. This should be the year that ends and following the basics is what it takes to end that cycle.

We know it is not easy when there are so many other things to deal with especially being first generation. There is so much to learn from college, staring a career or a family but at the core of it all, are your finances. At the end of the day even small steps lead to progress. We are here to help you! Check out our previous blogs that cover all the basics and join our community to learn more!

The markets are unpredictable in the short term

If you follow the stock market you know that 2020 was a whirlwind with a lot of unpredictability.  Triggered by the impacts of Covid-19 the S&P 500 index declined 33.9% from its all-time peak on February 19^th to its bottom on March 23^rd, which ended the long bull market from the 2009 recovery. We then experience the shortest bear market in history when the market rebounded in August erasing all losses that occurred in February. So, what do we have to learn from all of this?

Well, most importantly that the stock market is a long-term game. Personally, it was not easy watching my net worth decrease by 34% in February and it would have been even more difficult if I had lost my job or lacked liquidity. However, I know that losses are only realized when you sell at the bottom.

If I had sold in fear, I would have actually lost 34% of my net worth but because I stuck to my long-term plan I managed to recover as quickly as the stock market did. When it comes to investing it is best to keep our emotions out of our decisions and let the market do its job. Overall, 2020 taught us that coming up with a strategy and making well informed decisions is necessary when investing. Sign up to our newsletter to learn more about investing in the stock market and be ready for the inevitable ups and downs.

I hope that what 2020 taught us about money makes us financially stronger in the long term. It takes a major event to refocus and I truly believe 2020 is it. Take a moment to reflect on what 2020 taught you and use that to set up your financial goals.