There is a lot going on right now amidst this global pandemic. You’re being told to stay home, advised to not look at your 401k, and (if you’re lucky) being forced to learn how to work from home. If you’re in your 20s this is your first economic downturn as an adult. Though we remember 2008, few of us faced the economic burden felt by our parents, aunts and uncles, and even our older siblings. You could spend your entire day reading articles, surfing social media, and trying to make sense of what is happening… Instead, I’m proposing we shift focus (even if it’s temporarily) on what you can control. Here are the three things I think you should be doing right now if you’re in your 20s:
1. Remember, there is no such thing as financial risk in your 20s. However, you need financial priorities.
Ok, technically this isn’t true as there are of course risks faced by 20 year olds. But from a financial perspective there is no risk when you are 20. Do you know why? You have time! You have time for your 401k to rebound. You have time to further your education. You have time to settle into your career. My hope is that these are the building years of your financial life. Of course, there is a line to draw with financial risk. For example, I’m not giving you permission to blindly invest with a free trading app.
I know many people who’ve become accustomed to using trading apps to make some extra money. Here’s the reality… you’re not Jordan Belfort and this isn’t Wolf of Wall Street. For the better part of the last decade you could throw some money in the market and you were probably going to win. Now is a great time to reevaluate where you are investing money and why. Start with your employer sponsored plan, maybe open an IRA, and then consider these apps. Generally, if you’re not contributing to 12 -14% to your employer sponsored plan and don’t have three months expenses in savings you need to ditch the trading app. Oh, and your emergency savings shouldn’t be invested!
2. Cut Expenses
Other generations love to hate on millennials for a lot of things (I’m looking at you Boomers). Though I think we catch an undeserved bad rap for a lot, there are some things we’re really guilty of collectively. One of them is the ease at which we subscribe to new services. Netflix, Hulu, Amazon Prime, Apple Music, Dollar Shave Club, KindleUnlimited, Fabletics – you get the point. You can subscribe to just about anything these days (including Hey Money, ha!) and we do a pretty good job of signing up for new services.
Use this time to comb back through what you’re spending money on every month. Surely you’ve heard the coffee analogy? You know, the one where if you ditch your daily cup of coffee, invest it instead and it will be worth over $100k in retirement. I wrote an entire article about how I don’t align with the premise of “cutting out your daily latte.” However, it’s important to understand the opportunity cost of your dollars spent. If you don’t have an emergency fund you absolutely should cut out a subscription or two and build your emergency savings account.
3. Remember how it feels to be someone in financial turmoil
The reality is that not every household has yet felt the financial impact of COVID-19. Some companies are paying employees to stay home. Many of us are considered essential workers thus we’re still drawing our regular paycheck. Even if you haven’t (yet) been financially impacted by COVID-19 you most certainly know someone who has.
If you’re experiencing or watching someone struggle with a reduction of income please remember what this feels like. We are talking with people everyday who are learning how to file for unemployment and other benefits. There are so many practicing financial triage, attempting to juggle minimum payments, housing expenses, and food expenses. When COVID-19 is in our rearview mirror it would be really easy to forget how uncomfortable we felt about money. Generally speaking, we don’t allow these circumstances to change our long term behavior. This time – you have to.
When your financial life returns to “normal” make your financial health a priority. Build an emergency savings fund, decrease your housing expenses, eliminate debts, and come up with a plan to pay off your student loans. This will not be the last economic downturn we face in our lives. History suggests we’ll see several more. Now you know what instability feels like and it’s your job to prepare for it. You owe it to your future self to prepare for the inevitable.
If there is a silver lining to be found, it’s that if you’ve found yourself concerned about your financial health the time needed to make change has been forced upon you. The implementation of social distancing means you have the time to review your spending, set financial goals, and implement change. There is no excuse to not take control of your financial health.