This is an article ‘How The New Normal Has Changed Our Views On Personal Finance’ by Marc Primo
In the wake of unprecedented global events, including the COVID-19 pandemic, the Big Quit, and the Russia-Ukraine war, our lives have been reshaped in ways we never imagined. The "new normal" has infiltrated every aspect of our existence, mainly how we manage our money. From how we work and shop to how we invest and save, these times have left an indelible mark on our views of personal finance. Of course, knowing the critical ways the new normal has altered our approaches to money, budgeting, and investments makes us more financially prepared for upcoming challenges.
'The Big Quit' caused controversy, mainly because certain reports portrayed it as a permanent departure for professionals from the labor force. However, when examining concrete data, particularly in the U.S., it becomes evident that the labor force participation rate, which initially dropped sharply in early 2020, rebounded rather swiftly. This rebound even encompassed workers nearing retirement age, indicating that people weren't altogether abandoning the workforce.
Instead, professionals were predominantly making job transitions – often leaving well-paying but time-intensive positions to pursue jobs that offered less pay but more autonomy. Along with that shift is a new normal in how people manage their personal finances.
Rethinking the Value of Emergency Savings
Before the new normal, many of us might have treated emergency savings as an optional financial goal. However, the pandemic showed us just how crucial it is to have a safety net in place. The sudden job losses, reduced working hours, and business closures sent shockwaves through households, leaving many unprepared to handle financial emergencies.
Perhaps, the challenges can be attributed to the sudden advantage of time, peace, and quiet the pandemic has brought to work-from-home workers. Many employees concluded they want to work fewer hours or in distinct, hybrid methods to enjoy more flexibility in their jobs, work less exhausting hours, or even shift to a new career. It is obvious enough to state that more employees are seeking more control over their time and working conditions, given the pivot in how everyone was forced to embrace post-pandemic. The problem is that many also may not want to give up life's conveniences and aren't that prepared to make at least some financial sacrifices that can jumpstart good savings management.
Now, more than ever, more than 50% of the population is embracing the idea of building a higher emergency fund capable of covering several months' worth of expenses. This newfound emphasis on liquidity and financial preparedness is a welcome shift in how we approach personal savings and can provide a sense of security during uncertain times.
Even though each person's financial position is unique, experts advise having at least a few months' worth of living expenses, including rent, utilities, and other needs, in an emergency savings account. The general rule of thumb is that you should always have three to six months of expenses in cash savings to secure yourself for future fiscal challenges.
Remote Work and the Changing Financial Landscape
Going back to the discussion regarding remote work, it's important to note that one of the most profound changes brought about by the new normal can be a double-edged sword. Commuting costs, once a significant part of our monthly expenses, have now dwindled for those working from home. However, more homes also face higher monthly grocery bills since more time is spent at home. These shifts have led many individuals to reassess their budgets and reallocate funds towards more meaningful expenses, such as home improvement, health, and personal development.
Personal finance experts and financial planners must accept that the pandemic has made people feel they must take the reins of their financial matters and act more on their pressing needs and wants. Nowadays, it's acceptable to consider career trajectories, financial plans for retirement, potential investments, and everything else that has to do with money, but without jeopardizing life pleasures and bucket list dreams.
Of course, the remote work revolution still raises concerns about work-life balance and potential tax implications. People are now seeking expert advice on optimizing their home offices, understanding tax deductions related to remote work, and safeguarding their mental well-being in this new work environment.
Reshaping Investment Strategies
The new normal has also significantly influenced our investment strategies. With interest rates at historic lows, traditional savings accounts no longer offer attractive returns. This has led more people with passive income to explore alternative avenues, such as the stock market, real estate, and cryptocurrencies, to grow their wealth.
However, the volatile nature of these markets only highlights the importance of diversification and risk management. Investors are becoming more cautious and seeking guidance to balance risk and reward in their portfolios.
Then entered the Fintech era and the accelerated adoption of online banking and financial technology solutions. People have become more comfortable conducting transactions, accessing loans, and managing investments through digital platforms.
There's no question how the significance of identity and trust stand as pillars of today's financial ecosystem. More people are eager to participate in the digital economy. Still, to do so, consumers and service providers must successfully establish their identities through know-your-customer (KYC) protocols.
That makes personal and financial security more important than ever due to the expansion of data and the almost three quintillion bytes (10 to the 18th power) of information that is available online today. There is also the anticipation for an astounding 18 trillion digital transactions on more than 27 billion devices by 2025.
Nonetheless, the convenience and accessibility of Fintech have led to a proliferation of budgeting apps, investment platforms, and robo-advisors that cater to varying financial goals. As a result, financial institutions are also adapting to this trend, offering enhanced digital services and customer support.
Prioritizing Mental Health and Financial Well-Being
The new normal has taught us the value of holistic well-being, where mental health plays a vital role. Financial stress can significantly impact mental well-being, leading to anxiety and other psychological issues.
In response, a growing emphasis on financial education and awareness of mental health's impact on financial decisions have risen from out of the woodwork. More individuals are learning to cope with financial stress through mindfulness practices, seeking professional financial advice, and building communities to share experiences and knowledge.
While present times have reshaped our views on personal finance, prompting us to prioritize financial preparedness, embrace remote work opportunities, rethink investment strategies, and leverage digital financial tools, being informed about how financial management evolves is critical. As we continue to adapt, seeking professional guidance and maintaining a holistic approach to our financial decisions can do more than save three months of your salary in the bank. After all, navigating these uncertain times with confidence might be the only way to build a more secure future for ourselves and our loved ones, no matter what disruptions may come.