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Recession And Saving: Adjusting At The Wrong Time

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Forge Your Wealth is meant for education and entertainment and should not be used for financial advice.

American savings are dwindling because of this Americans must rely on debt or quick sells to pay for an emergency. And Disney bought Star Wars, did you hear about this news or am I a few years late?

Unfortunately, the Coronavirus pandemic has shown us that we are unprepared for a global crisis, especially financially. If that was not the case why did the US government have to provide citizens with a $1,200 check for stimulation of the economy? Why are there nearly 30 million unemployment claims since the start of the pandemic after only 6 weeks?

Granted there are many additional details not taken into account. First, every job furloughed or laid off could potentially receive unemployment. I know some people who worked 3 jobs before the pandemic who now work 2 and receive unemployment benefits. Note: I do not know how their filing works, they live in a different state than I. Second, filing for unemployment does not necessarily mean you are out of savings, just establishing some income before you run out of savings. Third, the stimulus checks and unemployment are both funded by taxpayer dollars. Stimulus checks are generally paid by all taxpayers and unemployment insurance is paid by employer taxes which I am all but certain have an effect on employee salaries. Don’t feel like you did not earn that money, you did, it’s just a matter of how long it lasts and if you need more. Regardless, if most people had an adequate emergency fund I do not think the US government would have taken these measures, or at least smaller ones.

Why Do We Have So Few Savings?

Some would say it is an issue of money. If that was true why is it that almost half of people with a salary between $100,000 and $150,000 have less than $1,000 saved? Read about HENRYs to learn more. Even after taxes $1,000 would be less than a week of salaries in those cases. A saving strategy does require money same as a car requires gas. If the car is not working then the gas will just be wasted. Same as if your saving strategy is not working, your money will just be wasted. It does not matter how much money you make, if you spend all your money, you will not save a dime.

Truth is people feel comfortable spending most if not all of their income most of the time. I have heard people say that it is ok to have next to no savings because they thought of everything. I have heard people say that it is far better to only save a few hundred and invest everything else. Those people are currently talking about their struggles with their money. This is why a recession and saving tend to be brought up together. People suddenly realize saving is important with a recession. A global emergency occurs and suddenly the non-savers say they did not take everything into account. Suddenly those people say they need help and say that they should receive it because they did not take an emergency into account.

Emergency Fund

Emergency savings are not for what you expect, but what you do not expect by literal definition. You can never anticipate an emergency, but you can always prepare for it. Emergency funds are designed to prepare for instances you have not expected.

Now there are articles being published about how the Coronavirus shows we should all have an emergency fund and that we as Americans are financially irresponsible. To me this is preaching to the choir, hopefully it is for you too. Just a reminder, I have met someone from the Czech Republic who thinks it is “Un-American to not be in debt.” How is it that a recession changes how we save, but not the desire for financial independence? That is why the word recession and saving tend to be brought up too much. A recession suddenly forces people to care about their saving habits.

Will The Recession Make Super-Savers?

One way I am afraid this recession will change saving is by making more super-savers. Super-savers will save most of their money. I know it sounds like I would be all for saving most of your money, but I am not. I am all for doing everything you can to forge your wealth. Saving money alone will never get you there. You will need to invest into assets.

But how can anyone be expected to invest in an economy in which we only know that things will one day go back to normal? What’s that? My editor says that it will be more like a new normal. I say it will be normal eventually. Ah, who am I kidding, we don’t even know what the future economy will hold. What I do know is that people will want or need certain products and services. Some people can provide said products and services, but they will need money. They will need investors. The concept of investing will not change. People will need money to build businesses and they will provide prospective investors with incentives.

This Recession Will Create Super-Savers

Every recession in the history has reported higher saving rates among Americans. What is different this time? You may not have too much of a choice. While some people may have an income shock, that has not happened to everyone. And can you spend on restaurants, travel, even gas in many circumstances? Didn’t think so. It does not matter how your income is, your spending has all but certainly plummeted.

As unbelievable as it sounds, you could still spend whatever money you have. Last I checked Amazon is still open, even 24/7. Every investment platform I know is still open too, you can and probably should buy investments. That is spending money, just more for forging your wealth instead of faking your wealth. Even then I think people will shift gears to become super-savers.

Twin Recessions

The 2008 financial crisis was devastating for people and at the very least temporarily forced people to focus on saving. It is also said that the 2008 recession was the second greatest recession of all time, some even say it should be called a depression or even more impacting than the Great Depression. Now comes 2020, there are debates of whether 2020 will be worse than 2008 and even the Great Depression. Either way people will have a stronger saving mindset with two recessions fresh in their memories. I don’t want to hear from older generations, “oh but we faced recessions about as frequently.” Those recessions were mild to moderate (hardly even moderate). These two were moderate (maybe more) to severe.

The New Middle Class Consumerism

While a recession is bad and saving too much cannot build personal wealth, I think one of the silver-linings that will come from this pandemic is a change in middle class consumerism. The idealism of middle class consumerism is to fake being rich as opposed to financial stability with content.

I hope that the pandemic we face will show us how we should spend in the future and maybe even avoid debt. After all, it costs $350,000 to have a middle-class lifestyle in New York City or San Francisco. Just to illustrate, this includes a modest living arrangement, modest vacation, some entertainment and dining, and not many if any children. I know there are many places in the US (if not most) where making $350,000 a year makes you royalty. However, I know there are many who travel internationally abroad for vacation or own a 4 bedroom house with only salaries of $40,000. Truth is, modest salaries should never be able to afford all of these. Yet people at least try to buy all of these. Why? Fear of missing out, AKA, greed. Everyone wants at least a little that they cannot have. Maybe we must embrace the fact that the traditional path of consumerism is a path towards debt that will cripple you. We should try to embrace a new middle class consumerism where we substitute faking being rich with financial independence and stability.

Final Thoughts

Saving has always been important. Yet people only come to realize that when a recession is neigh. I know no one has planned for this pandemic to happen, but it has happened. Life never cares if you are ready, you just are or you are not. An emergency fund can help you be ready for anything the world can throw at you.

Evidently, the US did not appear to be ready for a lockdown. A survey showed that a third of people said that the stimulus check would not cover them for even a month, and 64% said it would cover them for less than 3 months. No crap, even frugal people would have a hard time using only $1,200 for a single month. I could only do this if I spend only $400 a month on food and gas after rent and electricity. That would not include the internet. The average rent in the US alone would exceed the check. You must find a way to cover those expenses yourself.

It is a little late to take care of an emergency fund now, especially with nearly 30 million people filing for unemployment. However, when the world goes back to normal or a new normal, we must learn from the hardships of the pandemic to make sure we have an emergency fund set. Hopefully, you have an emergency fund. If you do not, you should take the steps necessary to establish one to get you on the way to forge your wealth.

Author: Papa Foxtrot

Most of my life I was careful with money and learned where I should invest it. I was very lucky to have parents who taught me financial literacy when I was young. Unfortunately, I am very lucky because many people lack the financial literacy I know. The purpose of Forge Your Wealth is to teach people who are just starting out in life how to obtain their wealth or anyone who just realized they may need to learn more to handle their finances. I currently have a PhD in biochemistry, just started a job in industry (will not disclose where exactly for personal and professional reasons) and am currently married to the love of my life. I am one of the lucky few people in America who graduated with no student debts, my wife was not. Over the series of a little over 3 years we paid for our wedding with no debt and paid off her federal student loans.

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