The coronavirus pandemic and its devastating effect on the economy has changed my thinking about money. In this article, I’ll explain three shifts in my personal finance philosophy that I’ve made since the crisis began. Let’s get started…
Emergency Fund
The first thing I’ve been thinking about is my emergency fund. Many personal finance experts say a 3-6 month emergency fund is what you should aim for. Is that really enough?
For most of my adult life, I had a 3-6 month emergency fund and felt secure. Now, my emergency fund is about 9 months of living expenses. I feel pretty good about that number given my personal situation, but I don’t know if I’d feel the same way if I only had 3-6 months of living expenses in my high-interest savings account.
Going forward, my goal is to maintain a 9-month emergency fund. I’m giving myself the flexibility to adjust that up or down based on how long the pandemic lasts. I’ll be paying close attention to the job market and my personal income before making any additional changes.
Keep in mind that it took me several years to build up my original 3-6 month emergency fund, so it’s okay if you’re not there at this point. You just have to start somewhere.
If you’re employed, set a savings goal and try to make building your emergency fund a priority. And if you’re unemployed, follow through once you’re able to go back to work.
Availability of Credit
Since the economic downturn, banks have started to reduce credit limits and are canceling some accounts at a time when millions of Americans need access to their credit cards the most.
If you’ve been following my blog, you know that I don’t carry credit card debt. I pay off my balances in full every week to maintain an 800+ credit score.
But even with that 9-month emergency fund in savings, I’m comforted by the fact that I have a lot of available credit in case there’s an emergency and I have to make a charge on a credit card that I can’t pay off in full at the end of the billing cycle. I don’t think this will happen, but it’s nice knowing that I have the available credit.
Here’s the lesson: Over the past few years, I’ve been so busy chasing rewards using my favorite credit cards that I’ve let a couple of cards go inactive. By not making a regular or semi-regular charge with those cards, I may be more likely to face a credit limit downgrade or cancellation.
This is something that I’ve started to take more seriously. I pulled out those inactive cards and set up small recurring charges on them. I’m talking about little things like the $1.99 per month that I pay for cloud storage from Google. I also set up automatic payments for these cards.
My hope is that keeping all of my credit card accounts active will prevent issuers from reducing my credit limit or canceling my cards. It’s a small step that I can take to maintain high available credit.
Conscious Spending
Budgeting has always been a major part of my financial strategy, but the coronavirus pandemic has opened my eyes. I’m focused more on where and how I spend my money.
I maintain a regular budget and a bare-bones budget. When the crisis began, I switched to the bare-bones budget and have been able to save a lot of money every month. It hasn’t been too difficult because I’m still making money and my expenses are down.
But as I conducted a routine review of my transactions, I noticed that I’m spending a lot more money at big retailers like Amazon, Walmart, Target, Whole Foods and regional grocery chains.
I guess that makes sense since those are the “essential” businesses that are open at this time, but it reminded me that I really don’t spend enough of my dollars at small, local businesses — even before coronavirus.
Here’s my solution: I set up a separate savings account and named it the Coronavirus Fund. All of the money I’m saving every month will go into this bank account. If I experience a loss of income or a major expense like a medical bill, I’ll withdraw from this account. But I’m also going to use my Coronavirus Fund to support local businesses more than ever before, especially as the reopening accelerates.
Has the coronavirus pandemic changed how you think about money in a significant way? Leave a comment below and let me know!
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I want to pay off my mortgage and second asap. 131,000. and 91,000. I pay 1/12 of a payment on each of the principals every month. Question should I pay more on one at a time? Should I refinance to get less years or continue as I am. The second interest is 5%. The 131.000. interest is 5.8%.
The decision of whether to refinance depends on how fast you think you can knock out the mortgage. Rates are extremely low right now. You may be able to refinance and save a lot of money, especially if it will take you 5-7 years to pay off the mortgages. Play around with those refinance calculators and contact a bank to explain your situation and see the options. Good luck.
Great advice regarding paying off the mortgage faster. I have set up the automatic payment every two weeks, to make those extra payments. The auto pay was great advice to make it a no-brained and to ensure commitment.
I was amazed at how easily I adapted to being at home and how much money I WAS NOT spending. For instance, I average about $100 a month on gas. In April I spent $15. Which made me wonder how many of my trips were unnecessary. This isi a little thing, but it pertains to many category in my budget, grooming, clothing, etc. In October I purchased a new vehicle and had more than half the purchase price saved. With a re-assessment of my budget I am able to more than double my car payment, meaning it will be paid off in 14 months. Sad to say that it took something like the quarantine to have me reassess my priorities.
It’s empowering to discover the necessity of buying local when possible.