I think we can all agree that 2020 was an unprecedented year for so many reasons. In addition to the obvious health risks that we’ve all faced, the year took an emotional and financial toll on many of us.
Now we’re facing a changing financial landscape brought on partially by the pandemic. And as a result, there’s plenty of traditional financial advice that simply doesn’t apply anymore (at least for the time being). I’ve put together a list of five money lessons that I hope we can stop following in 2021.
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“A $1,000 emergency fund is enough.”
While the advice varies from one personal finance expert to the next, some have recommended keeping as little as $1,000 in an emergency fund while paying off debt. Then 2020 happened.
The pandemic brought unemployment numbers that most of us couldn’t have imagined, and entire industries were brought to a halt. And while the federal government temporarily expanded unemployment insurance, it took some people weeks, if not months, to finally start receiving their benefits.
For most people, $1,000 isn’t even enough to pay their bills for a single month, let alone make it through what seems like a never-ending health crisis. Going into 2021, people should aim to save at least three to six month’s worth of expenses in an emergency fund — though some financial experts are recommending up to a year’s worth.
“It’s rude to talk about money.”
Many of us were raised with the belief that it’s rude to talk about money. And there’s no denying that some people find the topic to be impolite, invasive, and just plain uncomfortable.
Unfortunately, this belief that talking about money is rude has created a stigma about reaching out to loved ones when money is a source of stress. In 2020, more than ever, money was at the forefront of everyone’s mind. Many people lost jobs, and families worried about how they’d pay their bills on time. Even for those whose finances were largely unaffected by the pandemic, 2020 was a wake-up call for financial preparedness.
The taboo around talking about money is harmful to those who face financial stress and struggles. It prevents people from reaching out for help and creates the feeling that we’re all alone, when really, many other people are likely experiencing the exact struggles we are.
If we can normalize talking about money, we can find a connection with others, and work collaboratively to improve all of our situations.
Read More: How to Deal with Financial Stress
“Renting is throwing away money.”
For generations, people have been perpetuating the myth that renting is throwing away money. And with mortgage rates hitting record lows, renters might feel even more pressure to finally take the plunge into homeownership. This advice is off-base for several reasons, especially as we go into 2021:
- During the pandemic, many people found themselves desperate to leave urban areas in favor of more rural and suburban areas they deemed to be safer. But homeownership makes it harder to just pick up and leave.
- Despite the economic impact the pandemic has had, real estate prices have remained high. Buying when prices are so high is a risk since you never know if the trend will continue, or if your home will end up decreasing in value.
- There are so many hidden costs of homeownership that you could end up “throwing away” just as much — if not more — than you would renting. Between interest, property taxes, homeowners insurance, maintenance, and PMI, most of the money you spend in your early years of homeownership doesn’t even go toward building equity in your home.
That’s not to say that buying a home in 2021 is a bad idea. It simply means that you can ignore the financial pressures you’ve gotten in the past and focus on making the decision that best fits your life.
“Dining out is a waste of money.”
Once it’s safe to dine out again, I hope 2021 becomes the year that we stop feeling guilty for spending our money at restaurants. This one might seem controversial, but bear with me.
Our lives looked drastically different in 2020 than they ever had before. One of the things we lost was a connection with friends and family, which often happens around a dinner table — either our own or one at a restaurant. I think most of us are going into 2021 with a renewed appreciation for those moments of connection, and a willingness to prioritize them in our budget.
But there’s not just an emotional motivation behind this one. 2020 taught us, among other things, just how many people depend on the foodservice industry for their livelihood.
More than 15.5 million people work in the restaurant industry in the United States. And according to Business Insider, more than half of them lost their jobs, either temporarily or permanently, as a result of the pandemic.
I certainly don’t recommend dining out if it doesn’t fit comfortably in your budget. But knowing the economic impact those businesses have suffered, I hope we’ll all let go of some of our guilt around spending money at bars and restaurants once it’s safe to do so. And if you can afford it, being extra generous with your tips is a bonus.
Read More on Budgeting: The 50-30-20 Budgeting Rule: Is it Right for You?
“Money can’t buy happiness.”
There’s an old saying that says money can’t buy happiness. And it might be true to an extent. Sure, you can’t go to the store and purchase happiness, nor does more money guarantee more happiness. But there’s a connection there that we can’t ignore. Here are a few noteworthy stats:
- Money is the most significant source of stress for most Americans — it beats out both relationships and work combined.
- 87% of Americans report that nothing makes them feel happier or more confident than feeling like their finances are in order.
- A 2010 Princeton University study found that happiness increases with income up to $75,000. If you adjust this number for inflation, it could be closer to $90,000 today.
Money may not be able to buy happiness, but data consistently shows that up to a certain point, those with more money tend to experience more happiness and less stress. Many of us have likely been made to feel guilty for desiring more money (or maybe judged someone else for desiring it). I hope 2021 will be the year we prioritize financial self-care and encourage it in others. Because it’s more clear now than ever that managing your money and making more of it is self-care.
Next Steps for You
Ready to take new strides financially in 2021?
Now may be the time to sign up for financial tools that can help you track your spending, manage your investments, and prepare for the future. Personal Capital’s free financial dashboard offers robust technology to help you:
- Plan for retirement given a wide range of scenarios
- Budget and save for your short-term and long-term goals
- Analyze your investments and uncover hidden fees
Personal Capital compensates Erin Gobler (“Author”) for providing the content contained in this post.