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Money Lessons from the Pandemic

The COVID-19 pandemic has been a sobering experience, to say the least:  Lockdowns, supply shortages, skyrocketing unemployment, a stock market plummet, and, worst of all, over 58,000 deaths in the U.S. caused by a virus that is not fully understood.  I’ve been fortunate to remain employed and maintain the same income, but if the lockdown continues for an extended period of time, my employment becomes more and more uncertain.  The increased risk of losing my job has motivated me to examine my life to see what I can do to lessen the impact of unemployment and to take preventative action to ensure I can cover my essential expenses for as long as possible in case I’m laid off.

Lesson:  Use Anxiety, Fear, and Stress to Reduce Expenses

Hopefully you share my experience of not having your income impacted by the pandemic.  If you’re like me, though, anxiety and concern about “what if” have entered your mind after seeing 20% of the U.S. file for unemployment:  What if I lose my income or my income is impacted?  Let the “what if” motivate you to examine your expenses to see what you can cut out.  I’ve been focusing on reducing my expenses to the bare minimum so that I can pay for essential expenses (home, food, and transportation) for a longer period of time should I lose my job.

Eating out has long been one of my largest monthly expenses, with me sometimes eating out multiple times daily, so the pandemic and associated restaurant closures have presented a great opportunity to buy groceries and prepare meals at home.  In the past, I’d accomplish my goal of eating out less for three or four days in a row, at most, but then would slide back into old habits.  During the pandemic lockdown, I’ve loved seeing the savings of eating at home and prepping multiple meals when cooking, since I can quickly run to my fridge for food when I’m hungry and want to eat quickly.

Subscriptions and memberships to various services have also been on my chopping block.  Subscriptions are sneaky because they’re often not large expenses and aren’t attention grabbing, so often we pay them blindly every month.  In this pandemic, I evaluated many of these subscriptions that I “just pay” monthly to see if I really valued them:  Amazon Prime, credit card annual fees, Netflix, a Wall Street journal subscription, and more.  I cancelled some of these that I don’t really, really value, including unused gym memberships (I had four at one point which, yes, is ridiculous) that have been reduced to two memberships, both of which I use on a frequent basis.  In part two of the Personal Finance Foundation series (you can check it out here:  https://wp.me/p2zuKS-eo), I described how expense cutting can help you build net worth.  Reducing expenses during the pandemic has left me with more cash to save and invest, both of which build net worth, and both of which are very fulfilling to do.

Lesson:  An Emergency Fund Fosters Peace of Mind

Emergency funds are a basic component of a financial plan and for good reason.  An emergency fund serves as a buffer when you have an interruption in income or when you have unexpected expenses.    In times like these, if you lose your job but have an emergency fund, that emergency fund can tide you over.  Specifically, you can determine how long your emergency fund will tide you over by taking your monthly expenses and dividing it by the size of your emergency fund.

For example, if your expenses total $2,500 monthly and your emergency fund is $7,500, you could afford to live solely off your emergency fund for three months.  Of course, if you pick up a side hustle after you’ve been unemployed and generate some income, or if you crunch down on expenses, you’ll make your emergency fund last that much longer.

If you’re fortunate and haven’t lost your primary source of income, though, the emergency fund provides you peace of mind.  When it’s not needed, the emergency fund is a soft landing for you on a rainy day that reassures you in trying times.

Lesson:  Generosity is a Calling that Lifts Our Spirits

“Then the king will say to those on his right, ‘Come, you who are blessed by my Father. Inherit the kingdom prepared for you from the foundation of the world.  For I was hungry and you gave me food, I was thirsty and you gave me drink, a stranger and you welcomed me, naked and you clothed me, ill and you cared for me, in prison and you visited me.”

Matthew 25:34-36

A good friend and coworker of mine teaches his children that it’s advantageous to be good stewards of financial resources so that they can bless others when others are in times of need.  He emphasized to his children, “how would you feel if your brother or sister needed money but you were broke due to having mismanaged your money?”

I’ve found a degree of joy and peace during the pandemic by giving financial help to friends who lost their employment and by giving to Catholic Charities, who does a wonderful job of allocating cash donations to folks who are struggling.  Catholic Charities recently informed me of a case where a struggling mother contacted them informing them she’s unable to pay her electric bill due to losing employment.  Catholic Charities not only paid her current month’s electric bill but went above and beyond to pay all her current month’s utility bills.

If you have the ability to help others financially, I highly recommend doing so, especially if you’ve struggled spiritually, emotionally, or mentally during the pandemic.  The act of giving helps others and it also lifts you spiritually, emotionally, and mentally.  I’m a huge believer in the concept of building myself into the person I admire so that I can give him away, and I’m proud I’ve built a solid financial foundation so that I have the ability to help others in times of critical need.  If you’re not in a place to help others currently, remember the feeling of not being able to help and use it as motivation to strengthen your financial situation so that you’ll be better prepared to help in the future.

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Spending

Personal Finance Foundation – Part 2 – Easy Money: Spend Less

This is the second part of my Personal Finance Foundation series that serves as a starting place for those who are looking for an organized way to approach their finances.  It’s easy to find personal finance articles, but it’s much more difficult to find an organized approach to personal finance.  To read Part 1 of the series, go here:

Personal Finance Foundation – Part 1 – A Starting Place (Calculating Net Worth)


Spend Less

To grow your net worth (assets – liabilities), you can do any of the following:  Earn more, spend less, or grow your money through saving or investing.  When you start taking control of your finances, finding places in your life to spend less gets you immediate wins.  For example, it’s much easier to find cheaper car insurance than it is for you to get a new job or promotion that will give you a pay raise.  A few clicks will let you choose a higher auto insurance deductible and lower premiums, while a promotion requires you to demonstrate additional value to an employer over the course of several months or years.

Focus on the big expenses when cutting spending, since this will provide you with the most significant savings.  Sure, you can pack a lunch a day or two more per week, but doing this won’t move the needle as much as focusing on big wins that will net you hundreds or thousands of dollars.  Transportation and housing are typically the largest expenses for most people, so I recommend starting your cost cutting here.

Transportation Costs

If you’re in massive debt but drive a $40,000 truck, sell the truck, buy something less than $10,000 (you can get a very reliable vehicle at this price), pocket the difference and free yourself of the monthly payment if you’re financing.  As you hopefully know, a new vehicle’s value declines precipitously the moment you drive off the car lot, and continues declining significantly the next couple of years.

What if you took the money you saved driving a modest vehicle and applied it to a credit card balance, which likely has an interest rate well over 10%?  Or, what if you took the money you saved driving a modest vehicle and invested it in Vanguard’s Total Stock Market Index Fund, which has returned 7% since it’s inception?  By the Rule of 72, a rough measure of how long it takes money to double at a given interest rate, your money would double in about 10 years (72/7 = ~10).

Another example:  If you’re currently driving a vehicle with bad gas mileage and are also driving long distances on a regular basis, you would save significantly on gas costs by instead replacing your gas guzzler with a gas efficient car.  Many cars now average 30 or more miles per gallon, so you could potentially cut your gas costs in half by switching to a more gas efficient vehicle.  At a cost of $2.75 per gallon and at a 15 gallon savings, you save $41.25 on fill ups when comparing a 30 mpg vehicle to a 15 mpg vehicle.  At two fill ups per month, this saves you $990 annually.

Housing Costs

Your largest cost cutting wins will likely come from cutting housing costs.  For example, if you’re renting a $1,400 per month apartment but are drowning in debt, you can likely find a less expensive but livable apartment, condo, or rental home that would save you hundreds per month.

Another method for reducing housing expenses is house hacking.  This is done by getting a roommate or multiple roommates to pay you rent and split expenses, allowing you to take their rent payments and apply them toward the mortgage.  If two roommates pay you $500 each (I know, that’s cheap rent today), you’ll have an extra $1,000 every month and $12,000 annually to apply to your mortgage.  House hack for a few years and you’ll greatly accelerate paying off your mortgage and avoid paying tons of interest to the bank, especially for 30 year mortgages.


When it comes to cutting costs, though, there’s a limit to how much you can cut.  Sure, you could spend your free time cutting coupons, and this is fruitful to a degree, but you could also spend your free time engaged in activities that could move the needle much more drastically.  I’ll address these activities in my next post.

Stay tuned for part 3 of my Personal Finance Foundation series!