Four Rules You Can Throw Out the Window in the COVID-19 Normal

• Author: Jacob Greene
• Posted: 2024-10-06

COVID-19 has required us many of the ways that we look at personal finance. Some of the old things that we looked at as truth may be out the window as we rethink our financial strategies. Some of these old rules may be thrown out of the window forever in the post-COVID-19 world. The truth is that we do not know how the personal financial world will shake out once the world goes to the new normal. In the meantime, here are four old personal finance rules that you should be reevaluating based on the updated realities.

Don't Overpay on Your Credit Accounts

The conventional wisdom is that you should make more than the minimum of payments on your borrowings such as your mortgage and student loan debts. This is an old mentality for the environment in which interest rates were in double digits. The truth is that interest rates have not been so high since the early 1980s.

In a low interest rate environment, the cost of capital is cheap. In other words, you will be paying little to nothing in financing costs. Since you can obtain a higher rate of return if you invest your money, you may be better off making your usual monthly payment on your debt. If you pay more, you will not only cut down your liquid assets, but you may lose some tax advantages that you would otherwise get on your interest payments. Interest rates are barely above the rate of inflation. Until we are in a more inflationary environment with higher rates, it may be best to use your extra money for other purposes rather than paying ahead on your debt.

Get Life Insurance in Your Twenties

The previous thought was that you did not need life insurance under the age of 35 and that life insurance for those in their twenties was not an effective use of money. However, nobody quite knows what the long-term effects of COVID-19 will be on our overall health as a society.

Further, nobody can forecast whether this is a problem that will be fixed permanently with a vaccine or may stay with us forever. Finally, while young people appear to present less of a risk of dying from COVID-19, one never quite knows whether they are more susceptible to being hit hard by the coronavirus. Given the overall increase in mortality rates caused by a disease about which we are still learning, it may be best to get life insurance now no matter how old you are.

Don't Ruthlessly Cut Spending

The experts tell you to pare spending to a bare minimum. This includes your beloved daily cup of coffee for which you shell out a few bucks. However, you should not underestimate the impact that simple pleasures have on your psyche.

At a time when a third of the country admit to feelings of depression and anxiety, spending a little bit on yourself here and there is a worthwhile investment. You may be better off focusing on what you can downgrade in your budget as opposed to what you can eliminate. For example, you can cut back on the cable package that you have without eliminating television completely.

It is important to remember the role that spending can have on making you feel good. You need to balance your overall personal feelings with your need to save money. Eliminating expenses may not be your paramount concern right now.

Don't Be Terrified of Debt

What you do need to be afraid of is high interest rate debt that you would take on right now. This would include ordinary credit card debt as well as some personal loans that you should be avoiding.

However, there are some solutions if you find yourself needing to borrow something to help get you through this time. For example, you can find credit card balance transfer offers with a zero interest rate or something close to that. You may also be able to take out a debt consolidation loan that can help you cut the number of payments that you need to make and your interest rate.

There are times when you need to borrow money. However, if you do it within reason and intelligently, it will minimize some of the long-term impacts that it will have on you when things return to more of a normal.