Personal finance lessons from COVID-19

Record unemployment and an unstable economy impacted many Americans during the pandemic. The stress of the virus also strained personal finances, revealing weak spots created from a lack of savings and liquidity or an abundance of debt. The greatest lessons are often learned from adversity, and many of us will take away several from the global healthcare crisis.

“We have seen how prior traumas like the Great Depression have led to greater frugality in the generation that experienced that time in our history," says Aaron E. Graham, wealth advisor with Blackbridge Financial in Irmo, S.C. “Likewise, the current pandemic may have lasting effects on the current generation."

Whether or not your finances were impacted, here are five lessons you can learn from the pandemic:

1. Have an emergency fund

In the face of uncertainty and in light of newfound money from stimulus payments, the U.S. Commerce Department reports that Americans are spending less and saving more during the pandemic, says Graham.

“This increased saving is a reflection of the realization of the importance of having a rainy day or emergency fund," he says. “Emergencies and rainy days are a certainty, as many have seen during this trying time, and the value of having money stashed away has become readily apparent."

2. Set and stick to financial goals

Setting financial goals is a good first step, but you also need to stay on track with them, says Sandra D. Adams, lead financial planner with the Center for Financial Planning in Southfield, Mich.

“The financial stress of COVID, like other times of financial stress, surprises us with investment losses, savings time outs, unexpected job loss, early retirements, and more," she says. “If we can be ahead of our goals, we can build flexibility into our plans to accommodate for these times and still be okay."

One tip is to build flexibility into your budget. “Don't spend every dollar that you make," says Adams. “You should be able to easily pull back on the 'wants' when your income might be reduced."

And prioritize paying off your debt, adds Haley Tolitsky, certified financial planner with Cooke Capital in Wilmington, N.C. “It is extremely difficult to plan for the future and save and invest if you do not understand and strategize tackling your debt now," she says.

3. Have an estate plan

Anyone whose health was impacted by COVID understood the importance of having estate planning documents in place, including durable powers of attorney for health care and financial affairs, says Adams. Without the proper documentation, no one can handle your financial affairs or make key healthcare decisions on your behalf.

“Many have wished they had written a will," she says.

Putting in place or applying for life insurance, disability insurance, or long-term care insurance can also help protect your family's financial security, says Adams.

“Even if you have and recover from COVID and now want to put these insurances in place, you may be delayed from applying or may no longer qualify," she says. “Underwriting is more strict for many of these products. For example, long-term care insurance may not accept applications after certain ages."

4. Rethink your risk

Adjust your investment plan to be in alignment with your risk tolerance, says Brandon R. Opre, president of TrustTree Financial in Huntersville, N.C.

“As investors, our risk appetite often changes based on the market environment we are in," he says. “In early March when we experienced the fastest bear market in history, some would have slept better at night knowing they had allocated more to bonds or cash. In April, when the market had its best monthly return since 1987, those same investors would have felt better knowing they were allocated more to stocks."

Know, in advance, the amount of risk you are willing to take on and allocate your portfolio accordingly. “Believe me, we will see bull and bear markets again," says Opre. “Your plan should be one that gives you peace of mind regardless of the market conditions."

5. Plan for retirement

Before the pandemic hit, the financial industry had started to make a shift in terms of retirement planning to holistic retirement planning and a greater focus on both time and money, says Tracy L. Sherwood, president of Sherwood Financial Management in Clarence, N.Y.

“It isn't enough to ensure you have enough money to retire; it's equally if not more important to properly prepare for how you'll be spending your time in retirement," she says. “The pandemic has been a dress rehearsal for many as it forced everyone to take a closer look at their lifestyle, how much money they're spending, and what they're spending it on."

Hindsight is 20/20

And 2020 provided many financial learning opportunities to take forward.

“Hopefully [COVID] has taught us lessons on resiliency, and perspective on the role money and finances do play," says Sherwood. “It isn't everything, and at the end of the day, our health, family, friends, and community are so important."