Lessons Learned in the Pandemic: How COVID-19 Can Inform Your Financial Future
Believe it or not, we’re halfway through the year. Was anyone else expecting it to go this way? Me neither.
The coronavirus pandemic has undoubtedly changed the way we live our lives. Everything from going to the grocery store and day jobs to weekend plans and summer vacations has been turned upside down.
On a larger level, we’re reeling from historic unemployment, stock market fluctuations, and unprecedented government assistance programs.
One unexpected shift in the time of COVID-19 is spending trends and how we’re collectively changing our finances. Leading the financial planning team at SoFi, I’ve been able to witness firsthand the shift in spending and saving priorities.
While we look forward to the day where this crisis is behind us, I hope we can carry some of the mindful financial habits with us. Of course, we want that return to normalcy, but here’s how budgets have changed, and how to avoid slipping back into some of the not-so-smart spending habits of the pre-COVID-19 world.
The pandemic was something none of us anticipated or could’ve planned for, but as we’ve adjusted to the new normal, some spending trends have emerged. At SoFi, working with our members, we’ve observed the following trends in spending habits.
In general, people are:
1. Saving more. As people have been stuck at home, they’ve naturally had fewer opportunities to get out and spend. Almost by default, we’ve seen people spending less and saving more. Additionally, the uncertainty around the future has had members reevaluating and growing their emergency funds, or starting one for the very first time.
2. Keeping up with investments. Investors have experienced a rollercoaster of emotions in the market during the pandemic, but for the most part, it hasn’t changed investment strategies. A lot of people have chosen to stick with their existing investment strategies, instead of taking a loss and selling when the market is down. They’re responding to the market fluctuations with long term saving behavior in mind—remembering that the investment isn’t for today, but the future.
Surprisingly, we’ve also had a fair amount of members investing for the very first time. Whether it’s because they’re saving more, or just had more time at home to start researching, it’s never too late to start investing.
3. More efficient with debt. It’s a cascading effect, the more time people have at home, the less they’re spending, and the more they’re thinking about what to do with their money. In addition to keeping up with or starting an investment strategy, people are thinking about how they can be more efficient with their debt. They’re drilling down into interest rates, debt repayment strategies, and reduction plans. As short and long-term plans have changed, we’ve even seen SoFi members setting “micro-goals,” goals set over a short period of time in which they can focus all their energy into paying off a debt or saving more.
Sticking with these plans could mean living debt-free in the future, and that’s an exciting trend to follow.
With most of us stuck at home the past few months, we’ve had the opportunity to take a close look at our budget, deciding what stays and what goes.
As we move forward and our day to day lives change, it’s worth remembering the insights around spending we’ve uncovered at this time.
Change in Spending Habits
Like everything else in the time of coronavirus, spending habits have significantly changed; some for the better, and others maybe for the worse. Here are the highlights:
• Spending on dining and bars is down. We’ve seen a significant drop in eating out since the beginning of the COVID-19 outbreak. While we love supporting local restaurants on takeout Tuesday, people have been cooking more at home and seeing the savings. As restrictions lift, people will start traveling and eating out again, but hopefully, this halt in spending might make budgeters think twice on excessive eating out in the future.
• Entertainment budgets are lower. As a parent, we used to spend weekends at the museum or aquariums, paying $20, $30, or $50 a visit. In the time of coronavirus, we’re taking socially distanced hikes, spending significantly less entertaining ourselves. I don’t doubt we’ll be back at the museum or aquarium in the future, but it’s a reminder that entertainment doesn’t always have to come with a price tag. Plus a five mile hike is a great way to tire out an energetic toddler.
• Online shopping is on the rise. I’m just as guilty as anyone else when it comes to impulse purchases during shelter-in-place. It’s just too easy to hit the buy button and have something within days or hours. The emotional impulse spending of online shopping has been an unfortunate trend when it comes to financial habits.
As COVID-19 has rocked our daily habits and rituals, it’s natural for us to adopt new behaviors. The trick is recognizing which habits help, and which harm finances in the long term.
Keep Healthy Habits, Ditch the Rest
We’ve seen some big changes in our life as a result of COVID-19. While some things will return to normal, like not wearing sweatpants 24/7, we hope others will continue, like good habits with your finances.
Here’s what you can do to keep those healthy money habits going, even when things start to return to normal:
• Spend less than you make. We know the idea seems obvious, but just over a third of Americans don’t keep a budget at all. Start with a simple budget, like the 50/30/20 approach. That way, when everything starts opening up again, you can spend, enjoy, and support your favorite spots, stress-free, with a simple approach that works towards your future goals.
• Put money toward your future. Take a step back from everything that’s going on and consider, where do you want to see your finances in the next 30, 60, or 90 days? Tackle that goal with relentless focus. Find expenses to cut in your budget and put towards debt, or start automating investments into a retirement account. Thinking about how you want your money to finance your future can help set up healthy habits on the way towards achieving your goals.
• Remove emotion from purchasing power. Whether you impulsively bought a new set of cookware or golf clubs (guilty as charged), we’ve all fallen prey to an impulse purchase or two during the quarantine. With spending down, and saving up, these impulse purchases might not have had too big, if any, impact on the budget.
But, when things open up and people start spending on dining and travel again, the habit of making impulse purchases can dramatically downsize savings each month.
Combat the urge to impulse spend by trying to institute a holding period on all purchases. Before hitting the buy button, wait 24-48 hours. After the holding period, come back to the shopping cart and reevaluate if you really need it. In some cases, you might not even remember why you wanted it in the first place.
Get Your Money Right®
COVID-19 has dramatically changed the way we spend, work, and experience our lives every day. The time alone has also given many of us the opportunity to slow down, prioritize health, and take a deep look into the way we spend.
As life continues to adapt, it shouldn’t be a challenge to keep finances intact. SoFi Relay helps users track their spending all in one place, getting the big picture on their finances.
What’s more, users can monitor their credit score, set goals, and get one-on-one assistance from a financial planner to get their money right.
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC .
External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.