2020 was a year that none of us expected.
It reshaped our lives in unprecedented ways, from the way we connect to others to how we live, work, and spend our money. Defined by a global pandemic and extreme climate change events, 2020 unveiled injustices in our society including racism and class inequality to the way we treat vulnerable members of our society such as the elderly.
It was also a year that was a financial wake-up call for many Australians. The country faced its first recession in almost 30 years, millions lost their jobs within days, superannuation and savings accounts were depleted, and interest rates dropped to never-before-seen rates.
But the silver lining of these tough times is that it gave us the opportunity to learn valuable money lessons. It gave us the time to look at how we spend and save our dollars as well as prepare for our financial futures.
As we approach the end of 2020, we decided to look back on the year and reflect on the financial lessons we learnt. We also spoke to a few Aussies and asked them one thing: what did 2020 teach them about money?
An emergency fund is really important
If 2020 has taught us anything, it’s the importance of saving for a ‘rainy day’. The arrival of COVID-19, and its ensuing economic fallout, showed how easily and quickly it is to lose your source of income or face unexpected financial losses. Before COVID-19, most Australians expected their job to still be there for them the next day but as 2020 showed us, job security isn’t guaranteed (no matter how hard you work).
Think about major airlines and travel companies. In a pre-COVID world, it was unimaginable for them to think that international travel would one day be banned with many pilots and flight attendants out of work.
The general rule-of-thumb for an emergency fund is to set aside at least six months worth of income to help cover living expenses, loss of income, and medical emergencies. Ultimately, the sooner you start saving, the better.
It’s easy to cut back and save money
As stay-at-home orders were issued and working from home became the norm, many Aussies found themselves cutting back on expenses and, as a result, saving a lot. Suddenly, we realised we could live on less and were more than capable of saving, as shopping trips, restaurant dining, commuting, and hair appointments were out of the picture.
According to Rabobank, 3.7 million Australian households experienced a decrease in income due to COVID-19. This led to an increase in money mindfulness and better savings habits with 31% of consumers saving regularly, up from 25% pre-COVID.
This year has also taught us to take a good look at what we really need and what we can live without. While we don’t suggest avoiding movie nights and shopping trips altogether, it’s always a good idea to look at what expenses are weighing your bank account down. When setting up a budget, ask yourself if you really need coffee everyday from that fancy cafe? Or UberEats almost every night? Can you go longer in between beauty appointments?
Think long-term when it comes to investments
2020 showed us that while the stock market can quickly tank during times of recessions or global upheaval, it also eventually recovers. While the ASX declined when the pandemic first broke out, it’s since been on the rebound and back to where it was in early January.
- Don’t panic buy or sell stocks: While it might be tempting to sell your stock when values fall, it’s important to remember that the market is always fluctuatuting.
- Diversify your portfolio: If you’re risk-averse, consider diversifying your portfolio or putting money into conservative investments. That way, you will have some stocks going up, even when others are falling.
- Be patient: Research has shown over and over again that successful investors have almost always been the most patient ones.
Speaking of long-term investing, COVID-19 put a spotlight on superannuation due to the government’s early release scheme. From April 20, the Morrison Government allowed those suffering financial hardship as a result of COVID-19 to access up to $20,000 in super, tax-free.
According to figures from the Australian Tax Office (ATO), 455,400 young Australians tapped into their retirement savings.
This caused concern amongst financial advisers and experts. Essentially, accessing your super could impact your retirement savings and maximise the of risk losing your benefit of compound interest. According to Cbus Super, the impact of withdrawing $20,000 at the age of 25 could mean you lose about $45,000. If aged 35, you could lose about $37,000 and, at age 45, about $30,000.
2020 highlighted that while retirement may seem far off and it’s easier to ‘set and forget’ super, it’s important to remember that your actions today can have long-term impacts on your financial future.
Avoid debt as much as possible
One of the silver (dollar) linings of 2020 was that a lot of Aussies wiped out or paid off large amounts of their debt.
According to data from the Reserve Bank of Australia (RBA), Australians reduced their personal credit card debt by more than $7 billion as COVID-19 containment measures were introduced. Research by Mozo also found that prior to the pandemic, 67% of Aussies believed debt was ‘a necessary part of everyday life’ but now 1 in 4 are reportedly working towards getting rid of debt for good.
This isn’t surprising as the COVID-19 pandemic showed how debilitating debt repayments can be when you’ve taken a sudden pay cut or lost your job. Paying off debt quickly or avoiding it altogether could help reduce financial and personal stress and save money over time. When you need to dip into your savings, it’s a lot easier to do so when you’re not facing large amounts of debt.
An important note
2020 was a year like none we’d experienced before so if you’re going through a hard time financially, don’t be tough on yourself. Regardless of your age, gender, profession, or education, it’s never too late to take charge of your finances.
There are a bunch of community organisations, community legal centres, and some government agencies that offer free and confidential financial counselling. MoneySmart also has a feature on their website to help you locate a financial counsellor nearby.
- National Debt Helpline | Call 1800 007 007
- Lifeline | Call 13 11 14 | Text 0477 131 114
What money-related lessons did you learn in 2020?
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