One thing we can say about 2020: It was a year people will likely never forget.
The COVID-19 pandemic and resulting economic recession tested Americans. The challenges kept coming and we tried to figure them out the best we could.
As COVID-19 vaccines begin to be distributed, there is cause for optimism for 2021. But that shouldn’t mean that we forget the lessons 2020 taught us. Here are some good (and not so good) financial lessons to remember as we look ahead to a hopefully brighter future.
Job security isn't always so secure
The pandemic cost the U.S. economy a net 9.8 million jobs in 2020 – a number that was as high as 22 million in the spring. Even industries that seemed safe had to reduce or furlough employees. Moreover, many people who kept their jobs faced tough decisions on whether to expose themselves to the virus at work or how to care for children whose schools were closed.
Perhaps the clearest lesson to take from 2020 is that you can never be “too” financially prepared for the unexpected, because your job might not be there one day or a surprise expense might pop up. A savings account and emergency fund can make the unknown a little less scary, and reducing or eliminating credit card debt provides you better long-term security.
Help only goes so far
Government at all levels came through with help for people affected by the pandemic and recession. Stimulus checks, expanded unemployment benefits, eviction moratoria, and other assistance eased the burden for millions of people. But it wasn’t easy or often enough. By focusing on your own financial planning, you’ll be better positioned to navigate whatever 2021 brings. And if you haven’t paid much attention to your own finances in the past, now is the perfect time to start.
Retirement strategies still matter
Back in March, the pandemic caused the stock market to start sputtering, and the recession still has not quite gone away. However, by the end of 2020, markets reached record highs. Every investment has risk, but retirement strategies that use the stock market to grow, such as 401(k)s and IRAs, generally are solid long-term options to save for the future. Be sure to work with a financial advisor to determine if this is the best course of action for your investment goals.
Low interest rates boost the economy
The Federal Reserve appears committed to keeping short-term interest rates at practically zero until 2023 as the nation navigates these uncertain economic times. That low Fed rate translates into favorable interest rates for borrowing.
Low interest rates combined with people sheltering at home and having more time to research their options have sparked a surge of mortgage applications, home purchases, and home improvement projects, despite the recession. Whether you are looking to buy or just refinance, 2021 should continue to be favorable for securing a low-rate mortgage or home equity loan that works for you. And because interest rates likely will stay low in the long term, you can take your time, improve your credit, and thoroughly plan ahead.
Local businesses rely on you
As the pandemic took hold and kept shoppers and diners from shopping and dining, people gained a new appreciation for local businesses that were most at risk due to the lockdown. Consumers went out of their way to support the neighborhood pizzeria or independent bookstore because they wanted those businesses to survive. In 2021, remember that even as the pandemic starts to wind down, the local community benefits when local businesses thrive.
That said, remember that national chains might be owned by local franchisees who employ your friends and neighbors. They need your support, too. So, don’t feel bad if you occasionally zip through a McDonald’s drive-thru or buy gas from a Chevron – you’re still helping the local economy by doing so.
Simpler was kind of better
For as much pain as the pandemic and subsequent recession have caused, they also made Americans rediscover and appreciate the little things. People ate at home more often and became adventurous with recipes. Families enjoyed board games and jigsaw puzzles. Far-flung friends organized virtual happy hours. With little out-of-the-home entertainment options available, brisk walks and family bike rides became more common. And trips to state and national parks surged.
Not only were these simpler pleasures more personal and communal, but they were also more economical. In 2021, we may be looking forward to restaurants and vacations again, but we can find joy, community, and value in plenty of other ways. 2020 proved that.
Who will pay for all this?
The federal government has been distributing the latest round of stimulus checks and another direct payment to Americans might be possible with the new Congress. Many people and businesses need the short-term help. But for the long term, it’s still too soon to tell how all this spending, as well as all the lost revenue from the pandemic, will affect the economy.
Much of the bigger picture is out of the control of many of us, so the best we can do is make sure our finances are in order. Spending wisely, saving for retirement, and staying informed will help prepare you for whatever 2021 (and beyond) has in store.
You also don’t have to face your financial future alone. Let 1st United Credit Union help with a range of services from checking to credit cards to retirement accounts. Contact us to learn more.