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The world changed drastically in the last few months. Our normal life was flipped on its head and we’re all just trying to navigate our way around all the uncertainty.
When uncertainty becomes a part of your everyday life, it can cloud your decision-making process. This is certainly the case with your money.
I made financial mistakes that I should have avoided during the pandemic. At the beginning of the pandemic, I stopped looking at my budget almost completely.
Even as someone with expertise in the personal finance space, I felt overwhelmed by trying to make so many changes to roll with the current times. So, I didn’t make any changes. And for about two weeks (really) I didn’t touch my budget, at all.
Fear does that. It causes you to temporarily freeze in your tracks and lose focus on your long-term goals. Your priority shifts to short-term survival, which is not necessarily a bad thing. But, when that shift causes you to make irrational decisions with your money, that’s when we need to reel it back in.
So, it’s important to know what financial mistakes to avoid during the pandemic.
With the unemployment rates soaring and the stock market plummeting, it’s easy to get caught up in the uncertainty of it all. It’s especially true when we don’t understand what we should or should not be doing with our money right now.
Here are 13 financial mistakes to avoid during the pandemic, according to financial experts:
Money Mistake #1: Constantly Monitoring Your Investments
Investing is a long game. Checking in on your portfolio every week or worse, every day, will cause you to make rash decisions out of fear. It’s a financial mistake to avoid making right now. It can cause you to lose a lot of money.
Instead, ignore your portfolio for a while, check on them every quarter or twice a year. Checking more often can send you into a panic, especially when the market drops as it’s doing right now.
And the worst thing is to sell your investments when the prices drop because you think you’re cutting your losses. On the contrary, you’re actually realizing your losses.
The worst thing you can do is sell during a downturn. When you sell at a significant price drop, you’ve now realized the loss (meaning you’ve actually LOST the money).
A drop in a stock price only means that if someone were to buy that stock today, the price would be lower. It doesn’t mean you’ve lost money, unless you’ve decided to sell your stocks at that price.
If you stick it out and ignore the fluctuations of the stock market, no matter how high or low they get, you’ll inevitably see financial gains in the long run, 20-30 years down the road.
Money Mistake #2: You’ve Stopped Saving Money
When we’re in a financial crisis, it’s easy to think about reducing our expenses rather than increasing our savings. But, increasing our savings rate will help us weather the financial storm if and when it comes our way.
The more we save now, the more financially stable we will be, which can ease our stress during this financial uncertainty.
It’s easy to use this time of stress to impulse spend on things we think will make us feel better. This is a big financial mistake that we should avoid. Impulse spending builds unhealthy habits that take years to overcome.
Instead, take this time to strategize ways to save more money each month. The more you save, the more financially stable you’ll be.
Money Mistake #3: Paying Your Federal Loans When They’re Paused
Robert Farrington, founder of The College Investor advises:
“One thing I’m recommending people NOT do right now is pay anything towards their federal loans that are likely paused.
Instead, take that money (your normal student loan payment) and use it to pay down other debt like credit cards or car loan.
Paying your loans right now is essentially wasting free money. It’s unheard of to get this break on your loans, so use it wisely!”
I agree, if you’re able to defer payment, especially with interest fees at a stop right now, it’s a good idea to put all your efforts into paying off other debt that is currently still active.
Money Mistake #4: Taking Out Payday Loans
Michael Lacy from Winning To Wealth warns against payday loans.
He says “Because they aren’t heavily regulated, payday loans are notorious for having super-high interest rates and fees that will often exceed the value of the original loan.
Not to mention, most payday lenders require access to your bank account so if you don’t have the money, you’ll keep paying overdraft fees from your bank and additional fees from the payday lender.
This could lead you down a horrible cycle of taking out loan after loan just to make ends meet.”
A study by the Consumer Financial Protection Bureau finds that Over 80% of payday loans are rolled over or followed by another loan within 14 days.
I personally fell into this financial mistake in my early 20’s when money was scarce and I couldn’t make ends meet. From my experience, it was one of the hardest cycles to break and caused a lot of financial hardship for me.
Payday loans do a lot more harm than good.
Money Mistake #5: Relying on Financial Assistance Income Only
During a world crisis, like this global pandemic, avoid relying heavily on just one source of income and even more so, on your government for financial relief.
Jon from https://www.compoundingpennies.com has a good point with his advice on the matter:
“During uncertain financial times, you might be able to make ends meet with unemployment benefits or other government programs.
While this is helpful, you should not count on the money and act as if it is certain. In other words, don’t keep spending like you have been.
There is nothing guaranteed and if you do get some financial assistance, it may not last during the entire difficult financial times.
You are better served by cutting back on your expenses as much as you can and then use any assistance to help you navigate the period you are in.”
I’d like to add that this is also a perfect time to look at ways to have multiple income sources.
Having multiple income streams increases your income stability and ensures that you are not heavily relying on one source of income, which can put you at greater risk of financial struggle, if you lose that income.
Money Mistake #6: Adding More Debt
This is a huge money mistake that you should avoid at all costs, whether we’re in a pandemic or not. You should be doing everything in your power to reduce your debt right now.
With uncertain times, having less that you owe will keep you more financially stable and at less risk.
Ryan Scribner from Investing Simple says it best when it comes to new car loans, which can be tempting with their current offers:
“I would recommend not taking on new monthly payments. In particular, automotive manufacturers are offering some incentives, looking to get people behind the wheel of a brand new car.
For example, Ford is offering no payments for six months if you buy a new car. While this may sound like a good deal, this is not a wise time to take on a new monthly payment.
Most people would recommend not taking on more debt or buying a car during a potential recession. Job stability is up in the air and these companies are struggling. They are doing whatever they can to tempt you to make a major purchase.
Instead, this is a time when you want to keep your expenses low and maintain your existing vehicle.”
Money Mistake #7: Using Your Emergency Savings Funds to Invest
Instead, according to Drew, the founder of Simple Money Lyfe, you should “make sure you continue to contribute and build up your emergency savings fund, so you can weather the economic impact of a job lay-off.
When you are facing uncertain financial times, you should not apply for a loan or a mortgage unless you can successfully make each monthly payment.
Regardless if it is an attractive loan, the last thing you want to do is hurt your credit by missing a payment or defaulting. Especially, when our Economy is constantly changing and adapting, only incur debt you can 100% pay off.”
Money Mistake #8: Focusing on What You Can’t Control
According to Tom Blake from This Online World, we have what is called a locus of control. “A local of control is a psychological concept that explains how much control a person thinks they have over their life.
People with an internal locus of control strongly believe they can largely control their life and influence events around them.
In contrast, people with an external locus of control feel as if they have very little control and spend time agonizing over things that are outside of their control.
During uncertain financial times, it is too easy to focus on the things you can’t control. This is just us reacting to stress, of course, and it’s natural to spend time and energy worrying about external forces, whether it’s losing a job, a pandemic, or some other aspect of your life.
During uncertain times, you have to find the wherewithal to spend your energy on things you can control.
So, focus your energy on areas where you can make an impact. Redo your budget, start a side hustle, or create a strategy to build up your emergency fund.
The key here is to take some form of positive action rather than to worry about things that are out of your control. This mental process of reframing things will ultimately help you stress less and actually take action when it matters most.”
Avoid this money mistake, especially during a pandemic, and instead focus on shifting your mindset.
Your mindset is what can make or break your situation. Use it to help you grow and move forward, even during a pandemic.
Money Mistake #9: You Stop Budgeting
Jamie Griffin from Mr. Jamie Griffin (a personal finance blog) understands how powerful your budget is to your financial well being.
Here’s his timeless advice:
“Don’t throw your budget out the window. During a pandemic or financial emergency, your budget is your best friend. Use it as a guide to see what your real priorities are versus what’s extra where you might be able to cut back.
Focus on your immediate needs and put your wants and less important needs on the back burner.”
Yes, throwing out your budget during a pandemic is a big financial mistake you should definitely avoid.
Your budget is one of the most important tools you have right now. It is powerful in helping you assess your current financial situation and helping you plan out your spending and growth for the future.
I should have taken this advice during the first two weeks when I fell off the wagon. When I got back to budgeting, I realized how freeing it felt and how much it helped with reducing my stress.
So, keep budgeting.
It will not only help you financially, but it helps keep your stress levels down when you know where you stand with your finances.
If you need help getting started with a budget, grab the Budget Starter Guide, you’ll get it sent straight to your email.
Money Mistake #10: Not Having Financial Systems in Place
I get it, creating a financial system can sound complicated. You might not know where to start and find yourself overwhelmed. Maybe even that overwhelm causes you to freeze and you never get around to creating your system.
Without a system, it’s hard to spot where you’re going wrong with your money. Even more so, without a system, it makes it hard to achieve any of your financial goals like getting out of debt, having emergency savings, or just being able to afford a life you love.
Still feeling a little overwhelmed or don’t know how to start? Grab the Budget Starter Guide to help you get started easily.
Money Mistake #11: Not Setting Money Goals
Your gut instinct may be financial survival right now. Perhaps you lost your job or lost a portion of your income, along with 22 million U.S. folks, according to Market Watch. In this circumstance, it’s easy NOT to think about anything other than down at your feet.
But, I urge you to still plan ahead. Setting money goals, even if you’ve lost your income, is crucial to gaining your financial foothold again. It also keeps things in perspective and helps you focus on what’s next and how to get there.
Your goals don’t have to be extravagant, they can be as small as committing to cooking at home 5-6 times a week or saving $20 more per week.
The important thing is that you still create money goals to strive for. It will keep you better focused and more proactive so you don’t get stuck being reactive.
Money Mistake #12: Spending Money When You’re Bored
Most of us are bored right now. We’re stuck at home and practically everything is still closed. So, it’s easy to get into the bad habit of boredom spending. I’ve also found myself visiting the amazon site much more often than I used to.
But, spending money when you’re bored is just the same as impulse spending. It causes you to spend on things you don’t necessarily need and can really derail your saving efforts.
Instead of boredom spending, find some no-cost activities that can pass the time.
Money Mistake #13: Misusing the Government Stimulus Payment
The U.S. government has issued a stimulus package, which includes $1200 for each adult, and $500 per child, depending on your income bracket.
While, in essence, the stimulus payment is intended to stimulate spending and keep the economy afloat, you certainly do not have to use it that way. It’s a big financial mistake you should avoid right now, especially during the pandemic when everything is uncertain.
It’s better to use the stimulus check to build up your savings if you’re unemployed or pay off debt if you’re working (or a combination of the two).
The Goal is Financial Stability
Avoid making these financial mistakes to avoid during a pandemic, or any other uncertain time.
The actions you take right now with your money can have long-lasting effects on your financial health. So, it’s important to take your time and think through your decisions with the mindset of staying financially stable.
Don’t make rash decisions with your money based on fear or boredom, decisions made this way only prove to harm rather than help.
Stick to a system that helps you stay in control of your finances, so you can effectively plan ahead and weather the storm until the economy recovers.
Financial stability is the goal here, so avoid these 13 financial mistakes and you’ll be better off with your money.