In my life and career, I have found three things overwhelmingly true with money:
1) The unexpected is inevitable- you better be prepared financially.
2) To accomplish something meaningful with money, a commitment to saving is implicit.
3) Wealthy individuals all seem to resiliently pursue a discipline of saving money despite their circumstances.
The common denominator across these three principles is simply a commitment to saving money. It is the foundation upon which all other financial success will be built. And 2020 has challenged that resolve thus far.
COVID-19 has certainly provided a healthy reminder of these three truths. I don’t think anyone this past New Year’s Eve could’ve possibly foreseen a global pandemic shattering virtually every notion we had of what normal felt like in such a short period of time. Many weren’t ready. COVID has challenged our emergency funds, our investment strategies, the legitimacy of our goals, the nature of our jobs, and the very sense of security we all seek to provide ourselves and our families. As we’ve now reached the midpoint of 2020 and look ahead over the next six months and beyond, we should all consider what the last four months have taught us so that we are well positioned for the future we hope for (and the bumps that are realistically to come).
LESSON 1: Regularly take inventory of what you’re working toward, and why…
If there is one thing the COVID pandemic has financially illuminated, it would be our personal and professional priorities. After a decade-old bull market and solid economic conditions lulled us into a bit of a prosperity stupor, we have all been bluntly reminded that circumstances can change in an instant due to something completely out of our control. In the early stages of the COVID financial fallout, many resorted to panic protection because of the control aspect- hoard cash, slash spending, cut risk and reassess EVERYTHING. That was the triage, it could be controlled. To some degree this is human nature after a shock to the system, but it is still a rear-view mirror, “what just happened?” reaction. The process of reassessing our goals and priorities should be proactive rather than reactive and a routine part of our financial plans. That way you aren’t letting your circumstances dictate to you what you are/are not working toward.
If you have yet to go through this exercise, I would strongly encourage you to perform a bit of a sanity check on your goals. Then set a plan to revisit this list at least annually to track your progress. Understanding the dynamics of your goals over time will help to create a more resilient savings plan if/when the resources may be tighter than usual in the future.
LESSON 2: Budgeting may be a pain, but it is crucial.
The second thing COVID has highlighted is just how critical a role budgeting plays in the commitment to saving money ahead of, in and through uncertainty. I hark on budgeting and margin quite a bit, but I know this to be fact: commitment creates action, action creates habit, habit creates discipline, and discipline not only creates outcomes but withstands adversity. In this chain, budgeting is the action at the base of the equation. Individuals cannot expect to build significant wealth over time and weather hardship without knowing where their money is going and systemically imbedding savings into their budget. It is how we build margin to keep ourselves insulated in emergencies and how people push themselves to save so that their long-term goals aren’t derailed by our friend, Murphy.
LESSON 3: Pay yourself first.
The third message COVID has tossed into the open is to systematize our savings – take the indecision out of the equation by making it happen automatically before anything else. The “out of sight, out of mind” approach proves necessary when trying to save first and live on the remainder as a means of tightening the belt. I’ve had quite a few conversations in the past couple of weeks pertaining to people seeing cash building up in the bank during the early days of quarantine (mostly because “experience spending” was virtually eliminated). The additional cash felt great all things considered, but the problem was/is that the surplus didn’t ultimately translate into additional savings or investment. The funds ultimately got caught up in the routine cashflow and spent because it was available. The opportunity could have been seized immediately through an automated savings/investment strategy but wasn’t. Therefore, the takeaway is to make sure your savings goals are addressed first, in a thoughtful, systematic way so that when the uncertainty presents itself, you don’t have to on a whim trade your long-term savings for a short-term safety net.
LESSON 4: Challenge your savings norms.
There are two axioms that I keep in my daily task journal. What we have experienced with COVID has brought both to light when it comes to uncertainty and a recommitment to savings.
First, we’ve picked up a bit of a mantra in our office over the last few years, “what got us here won’t get us there.”1 It is a challenge to contentment and a great reminder that our goals, motivations and priorities should evolve as we grow. Same with savings. Starting with a digestible savings number to build a budget around is a commendable start. But if we don’t, over time, continue to test the boundaries of our comfort levels with saving money, it will become increasingly difficult to get ahead of where we hope to be and make us more susceptible to the detriments of uncertainty. We will constantly be stealing from the status quo. One suggestion might be to try to periodically increase the amount savings you’ve budgeted in. It can be a specific dollar or percentage increase, and it can be as frequent as you feel is realistic, but it should feel like a bit of a stretch to make happen.
The second phrase I have written in my journal: “make hay while the sun is shining.” This one is old and probably self-explanatory. Throughout the course of a year, many of us experience windfalls that if captured could take an enormous amount of pressure off the monthly budget when push comes to shove and things are tight. It can be tough to execute, however, because there is usually a laundry list of things the funds would be ideal for. Herein lies the commitment and prioritization. Do everything you can to maximize the opportunity resulting from a cash windfall. I’ve never personally seen anyone regret it.
COVID has undoubtedly impacted us all. Whether it is with our health, our routines, our careers or personal finances, what we’ve experienced has been life-changing for our society. My hope with today’s observations is that you can utilize them to regain control of your current and future financial outcomes. We also know here at Atlanta Financial that there are many out there with significant questions about where they stand now financially. Keep in mind, if there are any individuals in your network that may be unsure as to how the pandemic has or will impact their financial success moving forward, our AFA team has developed a complementary second opinion review service to provide clarity and peace of mind many are searching for in times like this. Please reach out to our team for more information if there is any way we can be of assistance!
1 This is from the like-titled book by Marshall Goldsmith- A great read if you’re looking for one!