Your Finances in an Unstable World
COVID taught us a lot of things, not the least of which were some important financial lessons.
Last year the U.S. economy plunged into a recession, marking the start of what turned out to be one of the most economically tumultuous years in recent history. We’ve had major financial hiccups in the past, for example the great recession of 2008, but in the wake of these unstable and volatile circumstances, it is to be expected that people will feel uneasy when it comes to financial matters.
We are now more than year on and, according to Pew Research, roughly half of non-retired adults say the economic consequences of the coronavirus outbreak will make it harder for them to achieve their financial goals.
Add to that the ups and downs following the 2020 election and investment oddities that popped up in the past six months, showing massive gains (and equally massive losses) from unlikely stocks like Gamestop, AMC, Bitcoin, and more recently Dogecoin, which only took one comment made by Elon Musk on Saturday Night Live to send it into a staggering nosedive.
The summary of all this could be stated quite simply — We live in strange times.
But what can be done amid all this uncertainty to stabilize your finances? The answer is remarkably simple. Here are some things that can be done to weather a potential financial storm and maintain stability, no matter what goes on outside of your doors.
Savings
When businesses were forced to shut their doors in March of 2020, no one could have predicted that the situation would last as long as it did. However, experts have been saying consistently for decades that you should have an emergency fund with six months’ worth of expenses for exactly this kind of unexpected turn of events.
An emergency fund is cash that you’ve saved up for the sole purpose of helping you maintain your financial obligations through emergencies that life deals out. If you do have expendable funds, then consider cutting costs and using the savings to put away into a dedicated emergency account. It may take time to build up, but it’s essential to have. Another idea is investing in gold or something that is stable and easy to sell if you ever find yourself in need of some quick cash.
Get out of debt
In 2020, total outstanding consumer debt grew to just under $14.9 trillion (up from $13.21 trillion in 2018). This debt is made up of several categories and some cases it decreased, most notably the average credit card debt declined by over 14 percent — a historic reduction that's likely helped consumers raise their credit scores. Consumer Home Equity debt also fell, although this follows a multi-year trend of decline in this type of debt.
Student loans surprisingly saw the largest growth in average balances over the past year at nearly 9 percent, followed by average auto loan debt and mortgage debt.
Either way, getting out of debt is a good idea, whether there is a financial crisis going on or not.
Conservative Investments
Think of it in terms of playing a game of chess, not checkers. Don’t be seduced by the “massive gains overnight” crowd, which promises unreasonable returns. Now is not the time to gamble your finances away. A sensible middle ground of investing is the way to go — investments that are based on real value and pay predictable returns over time.
IMPORTANT DISCLOSURES
Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities.
To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law.
Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.
These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable– we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
David Lerner Associates does not provide tax or legal advice. The information presented here is not specific to any individual's personal circumstances. Member FINRA & SIPC.