Financial Lessons Learned in 2020

Financial lessons learned in 2020

Having a savings account makes a difference.

No matter where you are on the income ladder, at some point in 2020, you were likely either feeling grateful to have amassed an emergency savings account or wishing you had. If you fall into the latter category, consider starting by putting $10/month into an easily accessible yet separate bank account away from your primary checking account.

• Make the contribution to this new savings account automatic. If possible, have your employer send it straight to the savings account from your paycheck or have the bank move it once or twice a month from your checking. Treat this as you do a subscription.
• Set a goal and base this goal off your current expenses. Multiply your monthly expenses by three (or more) and aim to save that much in emergency funds.

Once you do, you’ll feel more confident when we face another economic crisis and have more freedom to take advantage of opportunities that may require easily accessible funds.

Interest rates matter.

We have been in a very low interest rate environment for many years now, but the Covid-19 crisis resulted in interest rates moving even lower. Contrast today's Fed Funds Rate (the rate at which banks loan money to each other overnight) of 0.25% with the Fed Funds Rate of 30 years ago in 1990 at 8.10%, and you'll understand why many savers are frustrated that they aren't generating more interest from their savings accounts and CDs.

• Upside: TVFCU members still have time to lock in historically low rates by refinancing mortgages or other loans. Lower interest rates on your loan may provide significant savings over the life of the loan.
• Downside: Many investors find themselves reaching for higher interest rates by taking on additional risk in their portfolios. This makes it a difficult time to be a retiree seeking safety and returns. It is important to consult with a professional to talk through your options and trade-offs.

Whether you are in a position to take advantage of historically low rates on loans or seeking higher rates for income, the drop in interest rates in 2020 have been felt across the board.

Review your life insurance and beneficiary designations.

Even when we are not facing a global pandemic, please review your life insurance needs and beneficiary designations on all of your accounts annually. Unfortunately, 2020 brought to light how important this step can be.

Stay the course with your investments.

Countless people informed me that they stopped contributing to their 401(k)’s in March when the stock market took a nose dive. Understandably, it does not feel good to invest money into an account as the balance drops day after day. Some things to keep in mind if you are tempted to change your investment strategy when the market is volatile:

• If life doesn’t throw you a big curveball during a particular economic crisis, then consider keeping to your plans for investing for the long term.
• Remember that you are purchasing securities within a marketplace and when prices drop on those securities, you may have an opportunity to purchase them at lower price points.
• Risk means different things to different people. If you don’t feel confident that your investing strategy is right for where you are in life, meet with a financial professional to discuss it.

Support Local Businesses

It’s likely that you’ve seen a local business you loved shut its doors during 2020. Never before have we seen it make more of an impact to spend our money locally than this year. Businesses have shown so much ingenuity and creativity to do business safely in 2020. Don’t forget them when things get back to normal.

If a conversation with a financial advisor would benefit you, call us at 423.634.5212.