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Many Americans have experienced some degree of financial change due to the COVID-19 pandemic. Some people have dealt with furloughs or layoffs, leaving them to subsist on savings or file for unemployment if their situations qualified. In fact, unemployment in the early months of 2020 surpassed even the Great Recession — climbing from just under four percent in February to 13 percent in May.
Most people’s budgets changed in some way — whether it meant having to pay for in-home childcare when schools closed, delivery fees on products that used to be purchasable in brick-and-mortar stores or earning less money as business owners/freelancers.
While the pandemic has been a trying time for many families, we should learn to prepare ourselves for future financial trials from this experience. Here are three financial lessons we can take from the COVID-19 pandemic.
#1: Small Changes to Spending Habits Go a Long Way
It’s really, really easy to justify splurging on non-essential purchases. And “just $5” here and “only $10” there can really add up over time! In fact, these purchases can become downright budget busters, commanding funds you could have saved, invested or used to pay down debt.
Case in point: As CNBC reports, 78 percent of Americans have saved money by eating in rather than dining out during the pandemic. And the average amount saved? Just shy of $250. Other notable findings include:
- 75 percent of Americans saved by forgoing vacations ($1,411 on average)
- 73 percent of Americans saved by not spending on clothing ($223 on average)
- 64 percent of Americans saved by not attending sports/music events ($207 on average)
Now, this is not to say we shouldn’t enjoy our lives and have some fun. But it does illustrate how expenditures add up over time, and how being intentional about our choices can really leave some much-needed money in our pockets
An excellent first step is becoming aware of habitual spending habits by category.
#2: An Emergency Fund is a Necessity
If the pandemic showed us anything, it’s that hardship can strike seemingly out of nowhere. As many people experienced firsthand during the pandemic — and some debt settlement enrollees have cited in their Freedom Debt Relief reviews — unexpected job loss without a financial cushion in place can spur a debt cycle that’s extremely hard to break.
You never know when you’ll need an emergency fund to handle living expenses in the wake of a financial hardship, so the best time to start saving is right now. Even if you’re only able to start with small regular contributions, commit to automatically transferring a certain amount into a dedicated savings account. These efforts will add up over time, providing a safety cushion when catastrophe strikes. Recommendations for emergency funds start at three months’ worth of living costs, but many experts recommend continuing to save until you have six to 12 months’ worth stashed away.
#3: It’s Never Too Soon to Start Tackling Your Debts
It’s challenging enough to afford living expenses during a recession or following a financial hardship, let alone try to keep up on debt payments. This is why it’s never too soon to start paying down your debts, rather than putting it off until next week, next month or next year.
A simple, and typically free, first step is meeting with a credit counselor to go over the specifics of your financial situation — including your income, expenditures and debts. You can discuss various options for paying down debts with this professional, as well as conduct your own research into options like DIY repayment, settlement, management and consolidation.