Personal Finance Tips as the COVID-19 Economic Crisis Begins to Recede

• Author: Jeffrey Simmons
• Posted: 2024-07-27

Many personal finance experts were flush with advice for people on ways to act and tighten their finance when COVID-19 was causing a shutdown of the entire economy. Now, the U.S. economy appears ready to gradually reopen. When a full return to normal may still be further off into the distance, many people will at least be going back to work. From a personal finance perspective, this will require some new rules of the road for this interim stage of the economy. Here are four personal finance rules to follow when you and the U.S. economy are getting back to business this summer.

Make Sure to Save

When you are beginning to earn money again or your income is increasing, there is the temptation to go out and there and spend after months of austerity. You will want to expand your lifestyle to match the new money that you have coming into your account. Resist the urge to go out there and spend immediately. You may be paying back debt that you incurred when you were not working or working less. This should be the priority for you. While you may want to go back to what you were spending before, saving during this time is crucial. In other words, scale up your lifestyle gradually to match your revived income as opposed to an immediate lifestyle expansion. Not only will you be trying to reduce your debt, but you never quite know when and if there will be another shutdown of the economy due to another surge of COVID-19 cases.

Keep an Emergency Fund

Nobody quite knows the path that the recovery will take. Since there has not been a pandemic like COVID-19 in a century, economists are unsure how long it will take for normal economic activity to resume. The economy may not fully recover until there is a widely-available vaccine for the public to take. With that in mind, we do not know when the economy will take another downward turn. What is becoming rapidly apparent is that the v-shaped recovery that economists were initially forecasting will not happen.

With that in mind, you should prepare yourself for what may happen if the economy falters again in the near-future. The first thing that you can do is to set aside an emergency fund or build upon the one that you already have. While it will not be enough to pay your living expenses if you lose your job, it will help cover you in the event of unforeseen expenses like an unplanned medical bill.

Don't Pile On Credit Card Debt

While you may be making deferred purchases that you put off when the economy was closed, be careful how you finance these purchases. Putting them on a high-interest rate credit card is a recipe for future disaster. This will leave you indebted with high monthly payments that you may never be able to clear. When you are paying a 20% interest rate on your credit card, this becomes a monthly expense in itself and can place you in financial risk. Credit card debt should be your option of last resort if you need to finance a critical purchase. Other than that, be careful to resist the temptation to add new debt with high interest rates. What feels good now may leave a large overhang in the future.

Don't Just Save for the Short-Term

You have likely had to interrupt important things such as retirement saving and investing if you have had reduced earnings during COVID-19. Thus, your saving should have a two-part focus. Not only do you need to be prepared for the short-term emergencies, but you need to get back to executing your long-term financial plan. If you had stopped making contributions to your IRA or your 401(k), resuming them should be the first thing that you do when things begin to return to normal.

It may be difficult to catch up on the contributions that you missed when your income was affected. You should not worry as much about that right now. Just make sure to resume contributing at the first possible opportunity. If you take more than a few months off from your retirement saving strategy, the effects will be hard to overcome. Take the time to reassess where your retirement and other investment accounts stand after these several months of upheaval.