A young person's guide to post-pandemic spending and saving
Fashion Nova’s recent, oblivious text encouraging customers to spend their stimulus checks on its latest sale confirmed my irking suspicion: that our current financial reality is a confusing one. We’re just beginning to crawl out of an era that kicked up a devastating recession — one that includes stressed out young people new to the workforce and confused about spending and saving in a post-pandemic world. And yes, Fashion Nova, people in their early 20s do want to buy skimpy knockoffs that allow us to appear more Cardi-like. But also like Cardi, we'd like to be upwardly mobile.
We haven’t been in a major economic downturn in over a decade, so my cohort is feeling this slump and aren’t exactly sure how to proceed. Should we save everything we get or spend to “stimulate the economy?” Should we be paying off debt right now and is investing (in something other than a pair of Fashion Nova jeans) even a safe option?
The pannie has prohibited the jumpstarting of people's careers, as well as the execution of ambitious post-college goals. it’s an intimidating time to be stepping into the real world. A (new) normal is on the way, rest assured. So, what does that mean for those who have recently graduated from college and are just now starting their lives?
I asked financial experts what we can learn from this past year’s economic wake-up call. Here’s the advice they dropped, as well as some hypotheses on what we can expect the post-pandemic economy to look like.
Save your stimmies
If you still have some leftover stimulus money, save it. According to Jamila Souffrant, personal finance educator and founder of the podcast Journey to Launch, a podcast dedicated to help achieve Financial Freedom & Independence, your modest but mighty stimulus checks are a great way to jumpstart an emergency fund. If you already have an ample amount of money set aside in savings — as in 4-6 months’ worth of living expenses to cover an emergency — she advises to invest it instead. More on that later, though.
If you’re lucky enough to be employed at a company that matches your 401K, you can explore ways to personally invest your stimulus check outside of your 401K. Alternatively, if you don’t have a 401K, then this is the perfect opportunity to start your own long-term investment plan by putting money into an index fund or in individual stocks. I know it feels like a thousand years away, but you will want to retire one day and perhaps, shop online from a couch in a house you actually own.
Set aside money for taxes
If you received unemployment benefits in 2020, you do need to pay taxes on them, but not as much as you might think. Given the circumstances of the unemployment rate reaching record-breaking highs in 2020, up to $10,200 in unemployment payments are tax free. However, it’s worth noting that most unemployment compensation is qualified as income and is taxed accordingly, whether it’s automatically withheld or needs to be paid back.
Additionally, if you freelanced and earned more than $400, then you’re responsible for paying taxes on your earnings. Since taxes aren’t automatically deducted from freelance compensation, a common rule of thumb is to set aside 30% of every freelance check you receive. Souffrant advises that you should put this money into a high-yield savings account so you can earn interest on it, but in order to get specific advice on what savings approach is best for you, speaking with a tax professional is recommended.
Don’t be afraid to start investing
“The most important advice I have here is to make saving and investing a habit,” says Kimberly Foss, investment expert and founder of Empyrion Wealth, a firm that provides clients on custom financial and investment advice. Once you have a comfortable savings account of about six months of expenses, you should start thinking about the ways you want to invest.
“A lot of people have FOMO with investing,” points out Rich Jones, founder of Paychecks And Balances, a multimedia platform dedicated to helping Gen Y+ professionals achieve financial freedom. While it may be tempting to hop on the latest GameStop or Bitcoin trend, if you’re a beginner then you should start small. Understand why exactly you want to invest, Jones advises, and figure out a strategy that works best for your goals.
And, speaking of Bitcoin, Foss drops this jewel of truth: “When everybody knows, it’s too late.” Still, there’s so many more types of cryptocurrency to explore. Both Foss and Jones recommend that once you learn and grow comfortable with classic investing, then you can explore and play with cryptocurrency, but because of its little regulation and extreme volatility, you should only allocate a small percentage of your investable assets.
As for which apps you should use to begin saving and investing, a few expert favorites include apps such as Acorns, Mint and Digit, which help you put money aside and invest every month. If you’re looking for a platform that can both help and educate you, Public is an investing app that also operates as a social network, making it easy to learn various terminology and see what other people are doing.
Anticipate more independence in our economic rebound
You may have noticed that layoffs have been easing and companies seem to be regaining their footing, which includes hiring new employees again. Foss tells me that the job market is expected to continue to swell, thankfully, as the economy starts to recover. Still, she notes that the majority of employers don’t anticipate pre-pandemic employment levels until sometime around July 2021.
As far as how your work life might look, Souffrant predicts that remote work, in some form or another, is here to stay. This will likely bust the door open for young people to live in other cities and even pursue multiple avenues of income (hence, a continued explosion of the gig economy). It all makes sense because being isolated has empowered people to explore their own talents and propensities.
Look, predicting outcomes is all about what we've seen happen in the past. When we look back on the recovery of the last major pandemic, the Roaring ‘20s — an era of social and economic thriving — it ultimately followed by the Great Depression. So we know how crucial this period in time is when it comes to playing our (credit and debit) cards right. In order to avoid another modern day crash, Foss advises to “diversify your investments as broadly as possible and remain patient.”