COVID-19 has rocked the way we live our lives, from the way we eat and the way we talk to the way we spend our money. I’ve compiled a list of 11 ways that COVID-19 has possibly changed your finances and what you should do about each. Although some of these changes were drastic, several of them were also subtle, so take some time to find all the ones that apply to you!
Saving More - The first effect of COVID-19 around March 2020 in the USA was that a lot of people who were spenders automatically became savers. This occurred because fear set in, and people started to ask, "What is going to happen to me? Is the world going to fall apart? Is the economy going to crash? What am I going to do if I run out of money?" All these valid questions led people to being afraid of losing control. One thing people like to do when they are in a trying phase of life is to try to take control of whatever they can. The fear of unknown outcomes leads to people saving more money as their way of keeping control over something in their lives.
Minimizing Risk and Return - An additional step to spending less money that you may have taken is pulling money out of your investments to have cash. Many people did this because they believed that the economy was about to crash, and they didn’t want their investments to go down with it. The huge economic effects of COVID-19 could be easily seen when the Dow went from around 29,568.57 (02/12/2020), to 18,213.65 (03/23/2020) in 40 Days. On average, for every $100 invested, $38 went away. However, the American economy rebounded in the later half of 2020 and the early half of 2021. Now, the Dow is higher than ever before the pandemic hovering around 35,000 at the time of this article, about twice as much as 21 months ago.
Takeout Food Takes Over - It is likely that you started to spend more money on takeout food rather than eating out. With all the restaurants closed, everyone had to order in rather than eat out. This was a drastic change from what a “night out” used to mean. Before COVID-19, a date night consisted of going to your favorite restaurant, sitting down, ordering food, talking, and spending time with each other. Now, a date night means, “Hey, let's go pick up some food at a restaurant! Come home, have a nice dinner without having to cook or clean much. Or better yet, why don't we just use Grubhub or DoorDash and skip going out altogether.” If you go back and look at your credit card statements, it will be very clear that the way you eat food has changed because of COVID-19.
Online Shopping Increased - In addition to not leaving your house to eat, it is more likely that you make your shopping trips completely online now. I cannot tell you how often I see Amazon, FedEx, USPS, or UPS trucks around my small neighborhood. It used to be where I would see two or three of these a day, but now I see about ten to twelve of these trucks a day, because so many of my neighbors are now shopping online! The delivery system is so large that these big companies now have to use U-Hauls to make their deliveries. There are not enough cars in their fleets to make all these deliveries, so they hire other car companies to help out.
Less Gas Money - It is possible that you spent less money on gas! Not only do we drive less now because of COVID-19 and all of the restrictions, it is likely that you have others do the driving for you, with all of the new delivery services that are now booming because of COVID-19. This has led people to using a lot less gas, which also leads to less oil changes and car maintenance. If you were lucky enough to work from home during the pandemic, you most likely saved plenty of money on skipping your daily commutes. That said, you should probably look over your utilities bills to see how much those may have gone up since you’ve been staying home all day.
Decrease in Outside Entertainment - You probably spend less money on outside entertainment since COVID-19 due to the restrictions limiting where you can go and spend your money. Even though the country is opening up in most places, you and your friends are still likely to be nervous about going out, making you less likely to be spending as much because you go out less often. However, that money that you saved on eating out or going out with others is probably going to entertainment at home.
Less Buying Power - Your money is worth less now. Over the last 12 months, inflation has gone up by 6.5%. In other words, what you could buy with $100 one year ago now costs you $106.50. While this doesn't seem like a big deal, it affects you quite a bit more than you think. Inflation is typically a bad thing, especially when it is hyperinflation. The USA is not yet at the point where hyperinflation is occurring, but it is getting much closer than I have ever seen. At this point, if we keep going at this rate, I believe more of America will leave the middle American status and enter into the lower-income or lower net worth status of America because it is becoming harder and harder for people to make ends meet, especially when your purchasing power is dropping even though your salary stays about the same. Remember, if your raise was under 6.5%, you effectively got a pay cut for 2021.
Increased House Prices - It is likely that you are more willing to spend more on a house now. Most houses have gone up anywhere between 20% and 40% in the last 2 years. This has occurred because people do not want to be in a cramped space anymore if there is a COVID-19 lockdown again. People began leaving the city and moving to the suburbs and rural areas, especially with the work-from-home option. People are not afraid of long commutes because they only have to make the commute a few times a week at most and still get similar pay. A lot of people are now interested in buying a house with a home office, a bigger backyard, or even an extra room for guests. It looks like this trend is here to stay for a while because so many employees want the ability to work from home, and they need a separate office from their family so that they can focus on their work. A lot of homes do not have a home office, so people are changing their extra spare bedrooms into their own personal home office. These changes cause people to be more willing to spend more money, in addition to there being more demand causing the value of houses to go up very fast. My house has gone up by 40% in just 25 months. How much longer will this keep up? It is tough to say. For example, Zillow just ended their house flipping revenue stream, because it was hard for them to make a profit. However, there is still a supply chain problem and very few houses in inventory, both of those problems leading to a higher house price.
The Great Resignation - , or the Big Quit, is the recent phenomenon in which so many people voluntarily resign from their current job to work a new job! I believe this is happening because of two reasons: first, wages are pretty much stagnant even though inflation is going up fast, causing employees to want to find new opportunities that pay more. The second reason why I believe people are finding new opportunities is because working from home has caused people to lose their sense of community with their current employer. With the new flexibility of working from home and the ability to find jobs online, it is so easy to apply for a job, interview online, and get a job without your employer knowing. So many people have gotten new jobs without ever meeting their new employer in person. People are getting jobs across state lines that fit their lifestyle better and pay them more! I have also noticed a trend of rural workers and suburban workers applying for jobs in cities so that they can get a higher pay.
Localized Salary - One possible change is that your job could start paying people locally. In other words, two people working the same exact job with the same exact experience and skills would be paid differently if one lives in a rich expensive city and the other employee lives in a modest small town in Middle America. I believe this has many ramifications for our country. I think that over the next ten years we will see cities start to pay a little less and small towns and rural areas pay a little bit more than currently. People who work high-paying jobs in the city while working from home in a small town will bring back a lot of economic value that they could spend on their small town. This will allow people to stay closer to home, live near their friends, and still get paid well without having to move.
Higher Taxes - Your taxes will probably go up soon. Whenever the government spends a lot of money it has to eventually pay back the money. Some of the ways that the government raises money is by income taxes, capital gains, estate taxes, and import tariffs. I want you to think of the government as your personal business partner. You pay the government a certain percentage to help you be your personal business partner. You pay the government 6.2% for Social Security, 1.45% for Medicare, and anywhere from 0% to 40% for your income taxes. I would say for most people the government is about a 30% equity owner of their personal business. In return, the government protects you from outside countries, helps keep your freedom, and provides safety nets for you.
COVID-19 has caused a lot of change for people and how they spend their money. This should not be a cause for alarm for your money, but it should be a call to action. When was the last time you took a good look at your finances and really tried to identify your weak points and your strong points? If you're interested in taking action, sign up for my online coaching program.
Written by Caleb Basile, CPA