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How the pandemic changed the rules of personal finance
How the pandemic changed the rules of personal finance

In the last half of last year, we heard a lot of talk (and we talked a lot on NPR) about the Big Quit. This was a trend that started right from the start of the COVID-19 pandemic, and saw at least a large number of people voluntarily quit their jobs. There was some controversy about the big break, not least because some reports of the trend made it seem like many of those workers had decided to leave the workforce for good.

But the hard data, especially here in the US, suggests that the labor force participation rate, which fell in early 2020, has actually rebounded fairly quickly. This included workers close to retirement age. Which suggests that people weren’t actually quitting jobs at all, but just changing jobs; in many cases leaving well-paying but long-hour jobs and finding jobs that perhaps paid less but gave them more control over their lives. In other words, it was less the Great Resignation and more the Great Realignment.

That’s certainly the conclusion Jill Schlesinger has reached. Schlesinger is a certified financial planner and business analyst for CBS News. He is also the author of a new book, Big refund, based on her experiences talking to callers on her personal finance podcast, Jill on Money. Many of those callers were thinking about their own Big Quit, but they weren’t sure if they could do it or how to go about it.

The Great Money Reset book cover

Questions about changing jobs to achieve a better work-life balance aren’t unheard of in the personal finance world, Schlesinger says, but they’ve become much more common during the pandemic. She describes herself as overwhelmed. And he says it’s the first of a series of big changes he believes will affect the world of personal finance in the future.

“During the pandemic, people who called into my show were looking for more control over their time and working conditions,” he says. “Thanks to time and the silence of the pandemic, many have come to the conclusion that they want to work less or differently, to enjoy more flexibility in their work, to work in a less stressful job or to switch to a new career. They don’t necessarily have to go into a new career. willing to give up the comforts of life, but they are willing to make at least some financial sacrifices to do so.”

It’s not just about the numbers

Financial victim. It’s not a phrase you hear a lot in the world of personal finance. This is because it is largely focused on personal finance professionals and planners growing assets, with a long-term perspective. retirement. In that world, the concept of financial sacrifice doesn’t really fit. Schlesinger believes the pandemic has changed that as investors realize they may not make it to retirement, and it’s a good idea to think about how to access that money now. To incorporate this into the financial planning process, Schlesinger says, advisors need to get to know their clients better.

“The hard part for a lot of financial planners is that they don’t like to get into the emotional stuff,” says Schlesinger. The best and most expensive planners certainly do. they see their clients as complex people with different needs and messy lives. Much of the financial services industry, however, is geared towards treating people as widgets who are expected to have a certain lifespan punctuated by a certain retirement point. There is not much room for the human factor there. Schlesinger says good financial planners were already against that approach before the pandemic hit.

“They understand that you can’t just hand a list to a client and say, please fill in assets, liabilities, income expenses,” Schlesinger says. “You really have to learn who they are. And I think the pandemic has accelerated that trend.”

The reserve fund is the most important

Schlesinger says that before the pandemic, he would have given people pretty standard advice about their money. He began by telling them about the three pillars of personal finance.

“I would tell people, you’re just getting started. Here’s what you need to do. You need an emergency fund, you need to pay off your debt, and you need to try to save for retirement. And I would. often these things are given equal weight.”

People saw the wisdom of paying off debt and saving for retirement, of course. The emergency reserve fund. That was a harder sell.

“People were shouting at me and saying: “How can you tell people to keep six to 12 months of their living expenses in an account that pays no interest?” Because remember, in the pandemic and the early days, it was really 0% interest,” he says. But the pandemic has highlighted the importance of having some cash cushion. “The people I talked to who had emergency savings, had funds they could draw on, got through the pandemic much differently than people who relied on stimulus checks and extended unemployment benefits.”

Now, he says, he continues to protect the three pillars, but today the emergency fund is getting a lot more attention. And not only from him. “I think since the pandemic, more people are realizing that having an emergency reserve fund — having access to money that you can count on — has become number one, two, and three.”

Everyone wants to talk about estate planning now

The hardest part of the conversation for most financial planners is talking about the end game. People are happy to discuss retirement all day long. After all, they are waiting for a good time when they can travel or see family and do all the things they have been putting off for forty years. But talking about what happens to their money and their possessions when they die. Nobody ever wanted to talk about it before the epidemic.

They do now.

“I no longer have to fight people to get estate planning,” Schlesinger says. “It was a fascinating shift.”

Schlesinger says COVID-19 is putting end-of-life considerations on the front burner for many people. He heard a particularly harrowing story from a caller who told him about an explosion at the family business. “Someone died and there was a small business involved and there was no directive. For example, “What are we doing with this business? Well, Dad would like us to keep it, but Mom really needs the money.”

A family fight broke out because the dead parent left no instructions. Presumably not what the parent wanted to leave as a legacy. And certainly not what grieving relatives wanted to go through.

“Everybody knows someone with a terrible property history,” says Schlesinger. The positive side is that those people paid attention to those stories. Now they want to discuss estate planning. But they’re tough conversations that force people to make tough choices, and the challenge now, Schlesinger says, is actually getting his clients to implement those plans.

Triggers have been changed

Of course, it wasn’t uncommon for people to make big changes in their lives before the pandemic, but Schlesinger says it wasn’t particularly common. Most people had a predictable career and retirement trajectory that they did their best to stick to. There were usually only a few life events that could derail people from that trajectory. Divorce and death were the big ones, he says, but the pandemic brought many more stimuli to the fore. adverse work events; isolation.

“You live this very bare, stripped-down life, and you’re in your own thoughts, and you hear about horrible things, and it’s really horrible,” he says, noting that in that context, a lot of decisions are suddenly made; We have carried out to achieve a distant financial goal, it did not seem to make sense. “And maybe that’s the moment when you say: “Why do I live a thousand miles away from my parents? Why have I chosen to work so hard that I’m not really sure if I really love my job, but I do know that I do. kids, and I really don’t think I want to work this way anymore.”

A big barrier to making change, even when it seems like the obvious choice, is fear. But as Schlesinger sees it, the pandemic forced a lot of people to change. And they had to face those fears.

“I was just so overwhelmed by the number of fearful people. But who, when that fear began to dissipate, really saw an opportunity in all this chaos? And I’m not talking about market opportunity, I’m talking about life opportunity. What is it that I really think I want to do?

He says personal finance professionals and financial planners need to come to terms with the fact that, in a strange way, the pandemic has made people feel like they need to take more active control of their lives and protect their lives. more immediate needs and wants. Now it’s normal to look at your career goals and your financial plans for retirement and all the rest and say… What about me? Where does my current happiness fit into this?

Schlesinger has made big, bold changes in his life before. he left a lucrative financial planning career to become a writer, journalist and podcaster, so he knows what’s at stake. But it was her friend Maureen’s experience that really showed her the importance of understanding what your real motivations are for making changes in your life. And how to respond to them.

“Mauren was diagnosed with very terminal cancer, and she had a terrible four months of illness and passed away on November 30,” Schlesinger said. “Everyone has a major event that shakes up your life. Everyone does it. And you feel the stress. You feel emotions that I think even in myself when I went through that event with him, my own ability to understand how important the choices we make are. And what I can tell you is that when you can plan ahead and use that to open up avenues for yourself, it’s really beneficial.”

Lighten up a little

Wild investment strategies have been around for as long as markets have existed, but the pandemic has coincided with the craziest, including the meme stock explosion and the crypto craze. Schlesinger believes it had a lot to do with people being locked out without doing much while there was a lot of money flowing through the system.

“When I say there’s a lot of money pouring into the system, remember that we had trillions of dollars of excess savings that had accumulated. Mostly they came from the highest, highest net worth people, but a lot of people were knowledge workers who worked at home. who received incentive checks and had plenty of time to practice and a few dollars in their accounts.”

He says the communities that fueled this kind of trade weren’t new, but they exploded during the pandemic, and they’re likely to dwindle once COVID and its variants recede. But they won’t go away. And that’s normal. It’s even okay to spend some time on your subreddit of choice and occasionally browse the meme pool or crypto asset channel. As long as you do it responsibly.

“I’m not constitutionally opposed to people taking flyers,” Schlesinger says. “I mean, have fun, but don’t have fun and risk the farm. Have fun and say. “Okay, I’m putting 5% of my total investment into some crazy stuff. It’s fun.”

In other words, personal finance doesn’t have to be all asset allocation, income optimization, estate planning and taxes. It can also be fun if you choose. It’s a new rule that anyone can get off on.

It’s a new book by Gilles Schlesinger Big refund. It’s out now.

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