THE COVID-19 pandemic has devastated the financial lives of many Americans. Between jobs lost or hours dramatically cut back, many are facing financial ruin. The stock market was in free fall for a bit, but seems to have moderated a bit lately. While no one could have predicted the impact the virus would have on the economy, it has caused many of us to consider, or perhaps reconsider, our lifestyle.
Financial advisors recommend that we save enough money to be able to pay for our living expenses for three to six months. Our living expenses would include the “must haves” and not the “wants.” Your mortgage or rent, utilities, car payments, insurance premiums, food costs, and other items specific to your situation—such as baby formula or medicine—would have to be covered. Items such as new clothing, vacations, concert tickets, would not.
Another tip from financial advisors is to live below your means. Just because you can afford something doesn’t mean you should purchase it. A couple of examples come to mind.
I was on my campus visit for a job about 20 years ago. As part of the visit, a realtor was showing me neighborhoods in the community, as I had never visited the area. She asked what our budget would be for houses, if we were to move there. I gave her the maximum amount we were willing to spend.
As we drove around the neighborhoods, she told me the listing prices of houses for sale in those neighborhoods and, if no house was for sale at the time, she estimated the prices for the area. We drove into a neighborhood where the houses were obviously bigger, newer, and sat on larger lots. I said, “Wow. These houses are within my budget?” She replied, “No, but I have an idea what your salary will be if you become dean, and I expect you can afford this neighborhood.”
I reminded her that I had given her a maximum amount we were willing to spend on our house. I told her that we valued saving for retirement, our kids’ college educations and vacations. We didn’t want to put all of our money in a house. So the number I had given her? We meant it. Just because we could qualify for a mortgage for a larger house didn’t mean we would elect to use it.
Alfred Morris, a running back in the NFL, told a story at an event I attended several years ago. When he was in college, he purchased a 1991 Mazda 626 from his pastor for $2. The car was used, but Alfred was proud to have it. Fast forward to 2014 and he was driving the same car. As recently as August 2019, he was still driving it.
Why would a person making over $1 million a year still be driving a 1991 car? You know he was being ribbed by his fellow teammates when they saw his car in the parking lot next to the high-priced vehicles most of them were driving. He could have easily afforded to buy a new car, but he kept driving his 1991 car. In fact, it’s become a point of pride.
Morris understands living below his means. There are countless stories of professional athletes earning millions of dollars during their careers only to end up bankrupt. And if it can happen to them, it can certainly happen to those of us who are making middle-class incomes.
If we’re looking for silver linings in this pandemic, I hope one of them is that we take a moment to reconsider our spending and saving habits and begin following the advice of financial professionals. We will sleep better at night, especially during challenging economic times.