I knew that there was a correction coming to the market. The personal finance community has been buzzing about it for the last couple of years. But I don’t think anyone thought that a pandemic like the Coronavirus would spring upon us so soon. (OK – some people have been talking about a pandemic for years but honestly, I think a lot of us were either in denial or thought it wasn’t going to happen now.)
It’s been heart wrenching to see the physical and medical toll of a disease that wastes no time taking people down. It’s an unforgiving virus that is so small but yet can cause so much damage. So many lives and families will be permanently changed by the human life loss that has occurred over the last few months.
And from a personal finance perspective, the coronavirus is showing, once again, who’s been skinny dipping financially when the tide goes out.
Some may say that what I just said is a harsh statement. The truth is that we have had ten years since the last major recession to get our financial act together. The US economy has been booming for the better part of the last decade.
But the truth is that there are people panicking today who didn’t make changes to their finances over the last ten years to prepare themselves for a financial disaster. Humans have short memories, especially with experiences that don’t hit hard enough for a long enough time. Once the 2008 recession was over and people started becoming employed again, we all fell back into our old habits.
Except some of us.
Some of us got hit pretty hard in the last recession. I lost my job in March 2008, right at the beginning. I was working for an industry that was closely tied to the housing industry/market so when that started to fall, our company was one of the first to feel the financial repercussions. Luckily, I was able to get employed rather quickly while I saw others lose their job at the height in January 2009.
In January 2010, I decided I had had enough of feeling like I wasn’t getting ahead with the salary I was making. I started my debt free journey that would take me five years to complete. In those five years, I moved to Florida to help out my grandparents, my contract job ended, no prospects for employment in still-financially-depressed Florida, and my home in Minnesota went into foreclosure. The home sold at a sheriff’s sale for 30% of what I purchased it at in 2005.
I had sunk to a new financial low. I remember walking into my church and getting down on my knees crying because I was at the end of my rope, asking for any help that could be provided by the Almighty.
Eventually, things did start getting better. I landed a contract job. I started paying down debt again and saving money like crazy. And from then on, I decided to continue my debt-free journey and vowed to not be in the same position again. After all, it wasn’t about if there would be another financial downturn – it was only a matter of when.
So, what were some of the overarching lessons I learned over the last decade that have put me in a better position this time?
Being debt free is priceless. Period. I have heard from a lot of people over the years that they are OK with having certain debt because they are “good” debts. Or that the interest rate is so low that it’s not mathematically worth it to pay off the debt early.
The truth of the matter is that when a financial crisis hits, every dollar you have becomes precious for current needs – not for something that you purchased in the past that you may not own any more or are currently not driving or investing when you don’t have extra to do so.
Have a liquid emergency fund. I know there are some people that try to optimize their emergency fund by keeping part of it in the market and part of it in a savings account.
Stop trying to be cute and falsely sophisticated.
This money is not supposed to make you money. It’s supposed to be insurance, a buffer, so that when a financial crisis hits, you aren’t scrambling for funds. Or praying that the government will swoop in to take care of you.
There are no absolute recession-proof jobs or industries. I know that people will claim that their job or industry is recession-proof. I thought the same thing about my profession – accounting. And ironically, during this Coronavirus pandemic, I personally know health care personnel whose hours have been severely cut because elective surgeries and procedures have been pushed off. The truth is that every recession looks different and can affect different industries more severely in each unique situation. Government budget cuts, natural disasters, disease, and financial market induced-recessions all affect industries differently.
Keep your basic lifestyle costs low. I am not saying not to spend your money and enjoy it. What I am saying is to take a hard look at what you spend on day-to-day lifestyle costs to see if how you are spending your money is really worth it. Would you still choose to have a 5,000 square foot house with all the maintenance costs that go along with it? Do you really need a brand-new car every five years? Do designer clothes and shoes really matter when you could have saved the difference for peace of mind?
No matter how bad the economy gets, you will pull through financially and come out on the other side OK. I know it’s a scary time for a lot of people – not only financially but also health-wise as well. Being concerned about catching the coronavirus adds an additional layer of worry during an already stressful time. But I want to you know this – you will come out OK financially on the other side. Will it suck for a while? Yes. Will your net worth be affected by the market in the short term? Absolutely.
But I am here to tell you that I came out of this on the other side – still standing. I’m actually grateful for the tough times I went through. The knowledge I gained from the last recession put me in a much better place to make wiser financial choices in the future. And the financial lessons you glean from this recession will make you more resilient and financially prepared for what comes your way in the future.