1. No job is guaranteed. The coronavirus pandemic has impacted our lives in numerous ways, especially economically. Many people suffered job losses they never imagined, pay cuts from a job they once felt was secure, and changes to work that required them to quickly adapt to video calls and zoom conferences. While some people were able to recover quite well, others were not as fortunate. Regardless of which group you identify with, one thing became abundantly clear: No job is guaranteed. With this realization comes the need to plan ahead and be financially prepared for whatever my come our way.
2. Emergency funds are essential. Since no job is guaranteed, the income we rely on each month isn’t guaranteed either. As young professionals with bills and other financial responsibilities, we need to have money set aside in an emergency fund for times like these. Although the exact amount needed may vary based on one’s living expenses, general advice is to make an initial goal of saving $1000 in a savings account. Once you have the amount, then then keep saving until you have enough money to cover 2-3 months of expenses. Ideally, your emergency fund should be in a savings account or money market account that you can easily access.
3. Too much debt can make us vulnerable to catastrophe. One of the best things we can do with our money, besides saving and investing, is using some of it to pay down debt. Whether it’s car loans, credit cards, a home mortgage, or student loans, many young professionals have some type of debt. Since our income may change in unpredictable ways, the more bills and debt payments we are obligated to pay each month, the more we are vulnerable to financial catastrophe if our income decreases. Plus, most people have to pay interest on the debt they owe. This means the longer you wait to pay it off, the more the balance accumulates and grows – costing you even more money. My point? Try to avoid accumulating unnecessary debt and pay off the debt you have sooner.
4. Having insurance is vital. As young professionals, the majority of us are fairly healthy with very few, if any, medical conditions. Thus, we may not feel health insurance is that critical. Or, perhaps you have medical insurance through your job but don’t any other types of protection like disability insurance or life insurance. Rethink this plan. 2020 has shown us that life can be unpredictable, and we never know what may happen. One of the best things we can do is protect our income in case we cannot work for a long period of time (via disability insurance) and leave money for our spouse or children in case we happen to pass away younger than expected (via term life insurance).
5. Multiple streams of income provide added security. Many people had job changes or job losses this year. Even for the few people who didn’t have changes to their income, many of us know other people who were not so fortunate. Having multiple revenue streams makes us less reliant on our main jobs. It also serves as a cushion of financial security that can help protect us in case we experience a change at our main job or a decrease in salary. 2020 has highlighted how important this is. Start thinking about hobbies and other activities you enjoy or are good at, is there a way for you to leverage these things and use them in a way that will make you money? Perhaps you can create another stream of income in 2021.