You need an emergency fund
If the uncertainty of this year has taught us anything it’s that, nothing is promised and an emergency fund is crucial.
This time last year, we were living in a mask-free world. Going about our business and preparing ourselves financially for the Christmas holidays. Many of us couldn’t wait to get time off, to travel, to rest, or to just live a little and spend our Christmas bonuses. Fast forward to this year, and things couldn’t be more different. Millions of people have lost their jobs, businesses have gone under and the financial pressure to simply stay a float is constant. The pandemic has shifted the way people think about money. According to the U.S. Bureau of Economic Analysis, as of May 2020, during the peak of the pandemic, Americans were saving at a record of 33%. To put this in perspective, this has been the highest recorded savings rate since the 1960’s and considering the US has the biggest economy in the world, I wouldn’t be surprised if similar patterns were recorded all over the world. For a lot of folks this year, having an emergency fund would have made the difference between, barely getting by and buying time while figuring out how to get by. As we transition into 2021, perhaps planning for an emergency fund is a habit that we are all going to take more seriously after this year.
Budgeting is crucial
As I’ve already said, 2020 left many of us hanging by a thread, either mentally or financially. Perhaps, the economic effects of the pandemic have cost you your job and you’ve been living off your savings for a while. Maybe, your business tanked due to extensive lockdown and social distancing measures across the globe and you're up to your neck-deep in loans and payment plans. You’re not sure whether you should travel to see family this year. One because you don’t have the financial means to ‘Christmas’ and two, because you don’t have the financial means to ‘gift’ your up country family the way you usually do each year. The volatility of the year has highlighted many people’s spending habits. Shortfalls in cash may show you that maybe you spend too much on one thing and in the face of an emergency, you don’t have enough for another. Look at this as a good thing. Going into 2021 ask yourself, what did you overspend on? What would you like to spend more on? How can you budget to activate this shift?
You need to set financial goals
That brings us to financial goals.
At the end of the day, all of these different money practices we adopt is to reach certain financial goals. If we haven not set financial goals for ourselves then, what really is the point. Yes you need to have an emergency fund, but how much are you looking to have in it? Yes you want to implement a budgeting style, but to what end? There needs to be an end-game. Similar to a shift in saving culture, a recent study found that during the wake of the pandemic, 64% of Americans changed their spending habits this year, with moderate to significant reductions in bills, utilities and entertainment and significant increase in investments. What we can assume from this figure is that, following the financial fallout of the pandemic, the precariousness of financial stability people are trying to spend less and diversify income more. Perhaps, this is something you should also consider in your 2021 plans. What ways can you spend less? What ways can you diversify more?