Facing Financial Reality during COVID-19

April 2020

This is a supplement to the article below – find out (quickly) what the best plan of attack is for your bonus from the Feds.

In a lot of ways, it feels like the economic situation we’re sliding into is forcing us to face facts that a booming economy allowed us to ignore.

Unemployment is higher than it’s ever been at 22M unemployment claims in the last four weeks – and, very suddenly, all the times we’ve scoffed or winked at the suggestion to build an emergency fund of 6 months’ worth of expenses came back to bite us in the ass.

It’s easy to shrug off that type of catastrophic financial disaster planning when the economy is better than it’s ever been with no sign of an imminent downturn – markets were up, unemployment was low, and all looked peachy on the horizon. Living beyond your means, although not advisable, didn’t feel outright dangerous in the near-term in our old reality.

Oh, how the tables have turned. 

And – realistically – it doesn’t look like they’re turning back anytime soon.

The COVID crisis will almost definitely become the token scenario CFPs use for the next century when pressing people to prioritize contributing to safety nets: “You know, if there’s another global pandemic!”

And while it’s probably unlikely (I hope) that we’ll experience another similarly enormous and indiscriminately impactful situation like this in our lifetimes, it highlights an important reality of life: nothing is certain and everything can change overnight, and you need to prepare yourself so you’re protected from the stuff that’s so outlandish it wasn’t even on your radar of anxiety-inducing potential scenarios.

If you don’t have an emergency fund and you still have your job, now is the time to build it – point-blank, no way around it.

And what better time to start saving aggressively than when you literally can’t leave your house?!

Consider what this moment in life is teaching us: we aren’t in control. But how do we shield ourselves from situations we can’t control? Build a wall of liquidity around ourselves so high that, no matter how catastrophic, we’re covered.

Because today it’s a pandemic. Tomorrow it might be a giant shift in consumer behavior that results in your industry disappearing. In a year from now it might be an unexpected death or shift in your family structure.

The sooner we acknowledge that this is our new normal and – frankly – a chance to reset financially, the sooner we’ll feel a little certainty and assuredness in the midst of the chaos. Adaptability is paramount.

And maybe it’s a tough love moment – if you have been living a lifestyle that you can’t afford, it’s about to become painfully obvious. COVID is forcing us to face our own financial realities: maybe I don’t make enough money to drive this car or live in this apartment or have that $200 Rent-the-Runway subscription. It doesn’t mean I won’t someday, just not right now.

That’s okay. There’s empowerment in embracing your situation – because as soon as you accept it, you can find the motivation to change it (if you want to).

In other words: I want to live a six-figure life, but right now I make $50,000 per year. Do I need to change industries? Is there a skill set I need to acquire in my downtime right now so I’m more marketable or can negotiate for more? What about the side hustle I’ve always dreamt of but found an excuse for? What if the job that pays me $50,000 is making me miserable and – gasp – there actually is something better out there?

This situation is unique in that it’s forcing our hand. We have to adapt — so if something has to change, why not a change for the better? What if it’s better than you’re expecting?

Because even if you don’t have the six- or seven-figure income of your wildest dreams yet, you can save and invest in a way – especially through market downturns – that (over time) will make your financial situation start to mirror that of those who do. The un-helpful approach is living the six-figure life on the $50,000 income, subsidized by credit cards and/or spending every dollar that hits the checking account.

Tempting, but ultimately self-defeating and unsustainable.

We’ll all look back on COVID-19 some day and – for better or worse – judge how we handled it.

We’re being handed a massive gift in the form of a giant challenge. What if, rather than trying to reach equilibrium again (e.g., before COVID I was making $4,000 per month, so I need to try to find a job that makes that much again), we think a lot bigger? Rather than trying to make that same $4,000, what opportunities are in front of me now to make 1.5x that? 2x that?

That leads to asking ourselves very different questions. “How could I replace my old income?” will solicit answers that are very different in nature from, “How could I double my old income?”

I always apply the “How I Built This” opening principle. You know the podcast: the one where Guy Raz interviews founders of companies like Instagram and airbnb (and Southwest Airlines! Shout-out Herb!) and asks them about their origin stories.

You know how all those stories start? Adversity. Sleeping on couches. Losing jobs. Challenges. Sometimes (and stay with me here) I fantasize about being on that podcast 15 years from now — what’s my Guy Raz story going to be? Imagine it for yourself. “I lost my job during that COVID-19 fiasco in 2020 and finally had the time to invest in my Tik Tok career. Now I’m sponsored by Juicy Couture and exclusively wear velour tracksuits to all my meet-and-greets.” Dreams do come true!

I don’t want to romanticize hardship, but I do want to shift the perspective from feeling debilitated as the victim to seeing the opportunity that remains. What if life actually got better as a result of this?

A beautiful, real-life example from a human being I actually know: this individual’s income was cut entirely by COVID because his profession was something that could only be done in-person – effectively, an hourly wage that actually paid very well. Out of desperation, he launched an online platform to share that same gift virtually and asked humbly for donations. In one online session that lasted 20 minutes, he received $1,000 in donations.

A podcast I was listening to the other day with Ramit Sethi (author of I Will Teach You to be Rich) mentioned one striking thing that I think we’ve all been too afraid to acknowledge: some of these jobs won’t be coming back. There’s never been a better time to figure out what you’re good at, what you enjoy, and what you can monetize (the golden standard if you can hit all three) so on the other side of this, you’re employed in a lucrative and fulfilling role.

It all starts with recognizing and embracing reality. In some ways, fortunately, we don’t even have a choice right now. What’s this situation pushing you toward?