Tuesday, 29 September 2020

As we embark on moving toward a post-COVID economy, don't be surprised if you begin to question the validity of some of the most popular financial mantras.

The longer COVID remains a part of our daily lives, the more our spending habits will continue to change. Initially, we were unable to pop into our favorite stores, head out and enjoy happy hour with friends, or attend the debut of a new play. As we continue to navigate our way through this new, ever-evolving reality, we are often reminded that our budgets—and the financial rules we used to follow—may not work anymore.

Many of us are finding ourselves questioning a number of financial rules of thumb we had—up until now—accepted as fact. Financial decisions like buying a new home, how much we should save for emergencies, and even how much toilet paper we should have on hand have all become a part of our current financial conversations.

Collectively, we have discovered that the COVID economy is no longer our parent's economy. And with this new reality, it's time to reconsider some of the financial rules of thumb many of us have grown up with.

Maintain three to six months worth of savings

Many of us have heard that three to six months of savings is ideal for the average person. With an uncertain economy affected by stay-at-home orders, staggered reopenings, and the like, many are finding themselves rethinking the timeline on that savings strategy.

Americans have been known to save at lower rates than other countries. In fact, the Organization for Economic Co-Operation and Development found that Americans saved a little over 7% of their income between 2016-2019. However, Americans are now saving at much higher rates during the pandemic, which many economists speculate is a reaction to the financial uncertainty around us. In fact, the Bureau of Economic Analytics found that Americans saved an astonishing 32% of their income in April 2020.

Whether you decide to have three months of emergency savings or 12 months, take some time to assess what will work best for you and your family.

It's cheaper to eat at home

For many families sheltering in place, grocery bills began to skyrocket during the height of COVID-19. Everyone was eating at home—all of the time—and there are stats to prove it. Grocery shoppers went from spending $120 on average to $161 per grocery trip according to Supermarket News. At the same time many of us were guilty of emotionally eating, further causing grocery prices to rise. In addition, the USDA noted that closures of meatpacking plants were one of the causes for the increase in food prices.

Don't borrow what you don't have

There are some people who argue that people should avoid having too many credit cards or not using them unless you can pay them back in full each month. The pandemic taught many of us that having the ability to access a line of credit or personal loan, if needed, can be a lifesaver. Being able to take care of financial matters while waiting for a loan or other aid for which you may have applied has value all its own.

Spend only 30% of your monthly budget on housing

While there are some slight variations to this financial rule of thumb depending on where you live, 30% seems to be the percentage most often shared when discussing monthly housing budgets as a percentage of monthly earnings. Many renters and homeowners are finding themselves rethinking what they are spending on housing.

In fact, the Elliman Report showed a significant increase in the availability of NYC rentals as people left the city looking to decrease their overall expenses. With Broadway closed and sporting venues shuttered, many of the amenities people were paying for as a perk of living in New York City were no longer available. As a result, tenants questioned their housing costs.

The reality of financial rules

Personal finance is personal, and it's clear there's no one-size-fits-all approach to money. The COVID-19 pandemic has forced many of us to rethink our financial truths—just one of the many things that are ever-changing these days.

Reconsidering "old ways," however, can make way for new and improved ones.

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