I worked on improving my family’s finances for a little over a year – from late 2018 to early 2020. You can read that journey here. And then… COVID hit. I wanted to give a financial update on how my financial planning worked (or didn’t work), and explain the strategies I’ve used while the pandemic has raged on for about a year now.
Same Storm, Different Boats
First off, I always think about an analogy as the world is moving through this pandemic: “we’re all in the same storm, but different boats.” Some people’s lives have been financially destroyed, some have thrived and never been better. Some have hated the isolation, some have absolutely loved quarantine.
As I walk through our situation and finances for the last year, I fully understand that many people have had it much, much worse. My heart and mind goes out to them daily. By talking about my situation, I don’t mean to be tactless or tone deaf towards other peoples’ misfortune or suffering. I’m just reporting what I’ve been able to do (and not do) based on the cards that were dealt to me, in my situation (in my “boat”).
Our finances have weathered the pandemic ‘storm’ well. The vast majority of the reason is because my wife and I both kept our jobs throughout. She’s a registered nurse and I’m in Information Technology. Both of our positions were classified as essential and so we weren’t furloughed.
But what if we were furloughed? When the pandemic first hit, and before I knew if we’d keep our jobs or not, I went through my financial plan to see if it still made sense.
If we would have lost one or both of our jobs, my plan would have been to reduce expenses (percentages that it would have reduced our monthly expenses are in parentheses):
- We’d save money from not using as much gasoline commuting to and from work (2%).
- We’d save money from not eating out for lunch as much (1%)
- Cut all discretionary monthly spending (25%):
- Cancel most subscription services (Netflix, etc.). Maybe keeping one for entertainment during quarantine.
- Significantly reduce our monthly fun money allotments (7%)
- Stop monthly investments (savings, stock market, etc.) (20%)
This would go along way in reducing our monthly expenses, by about 55%. We could afford all of that when times were good, but if we had lost one or two jobs, it wouldn’t be a good time. And it’d be time to batten down the hatches and take cover.
We would have also used the following monies to pay our expenses (from first to last, in the order given, as each one ran out):
- Unemployment/governmental stimulus
- Emergency fund
- General savings
- Sell stocks (non-retired)
- Sell cryptocurrency
Under my estimates, this would have allowed us to pay all expenses for about 2 years with no additional income and avoiding pulling from retirement accounts.
This would have given us a good cushion to weather the pandemic, get called back from furlough or find different jobs.
Fortunately, we kept both of our jobs and we didn’t have to go through this exercise. Instead, I looked at money preservation and growth options.
Low Interest Rates
A couple years ago, putting your savings into an online High Yield Savings Account (HYSA) account was all the rage. At the time of me writing my one-year financial improvement journey here, the HYSA that I had our emergency fund and general savings in was at 2.57% APR, which was great at the time. Then it started tanking. It went down to 1.78% and now sits at 0.35%. That’s… terrible. But follows the trend of low interest rates for everything based on the Fed’s interest rate.
The Fed has kept interest rates low during the pandemic so that people will spend instead of save, to try to make the economy bounce back. If interest rates are high, people will just throw their money into savings and hoard it, which is not what you want people doing during a pandemic and subsequent massive hit the the economy.
So, pretty much every traditional investment vehicle (savings, bonds, CDs) are all sinking ships right now. Everyone is trying to find ‘higher ground’ with higher returns.
That’s why everyone is investing in the stock market. It’s one of the last bastions where you can get good returns. And people also see certain industries and companies thriving during the pandemic (and after) that they want to invest in. Mostly tech companies that are helping remote work and school movement. (Zoom, Microsoft, Amazon, Google, etc.).
Of course there are some real losers in the market right now too (transportation, entertainment companies). That’s why these stocks initially tanked but have started creeping back up because people think (and hope) that we’re on the other side of the pandemic and these gutted industries will come roaring back.
Crypto-Based Decentralized Finance (DeFI)
I saw the writing on the wall that interest rates were tanking. I’m fine with leaving our emergency fund in a low-interest savings account that is insured via FDIC insurance because I need that money to be safe since I need it to be there for emergencies. But I started looking for options to move our general savings elsewhere.
That’s when I discovered DeFI (decentralized finance). This is cryptocurrency-based systems that have higher risk (no FDIC insurance, higher chances of scams, hacks) but much higher reward.
There are many options out there. But the short of it is that I settled on Celsius Network after researching it and fully understanding the risks and rewards.
I’ve moved all of my cryptocurrency to Celsius (that they support) as well as general savings (in the form of USDC crypto) beyond my emergency fund. I’m currently getting 10.51% APR interest on USD and between 3-6% on my crypto. This is of course better than inflation and much better than traditional HYSA (to say the least). This puts us in a great position for excellent returns and significant growth through compound interest.
My wife and I got life insurance a couple years ago which I think is a great move – everyone that works and supports others should have it. I started realizing not having disability insurance was a gap in our coverage.
My wife has a great policy through her employer but I didn’t have any disability insurance. I think COVID was on my mind at the time – what if I come down with it and it’s a long road to recovery? It just got me thinking about possible scenarios.
I researched and discovered that my employer doesn’t offer it. I ended up getting a policy with coverage and terms I’m satisfied with from a well regarded insurer (and into the lock box a copy of the policy went!)
As the pandemic has moved along, I’ve needed to evaluate our monthly investments, especially with adding Celsius to the mix as well as the boom in crypto currency. I want to always make sure I’m investing in things I believe in, in a balanced way across them to spread risk and reward.
We invest about 20% of our income monthly. This includes our 401Ks.
All told, we invest monthly:
- 401(k)s (automatic)
- Buy Bitcoin (BTC) (automatic)
- Savings beyond emergency fund transferred to Celsius (manual)
- Roth IRA (set aside $500/month and then move all of it into Roth the first week of January).
Why do I put the $6,000 (lump sum) into the Roth instead of putting the $500/month into it (dollar-cost average – DCA)? Isn’t DCA better than lump sum because I’m ‘buying the dips’ of the market? It sounds logical, but no. Multiple research and experiments have shown you have better returns 2/3 of the time doing lump sum instead DCA. See here for more info.
We’ve been fortunate during the pandemic (although, it’s not over yet – we continue to try to be safe and can’t wait until this is all over; whenever that is whatever that looks like!).
In any event, the moves that I made during the pandemic have been:
- Thought through my strategy if we were furloughed
- Move general savings beyond emergency fund to a DeFI platform for higher interest rates
- Get disability insurance in place
- Tweaked monthly allotments across different investments
This wasn’t as big of tweaks and moves as I made during my financial improvement push (article here) during 2018/19 but that’s good – means I’m heading in the right direction.
I said in that article that those moves got our finances were I wanted them from about 80% to 95% of the way. I feel that the tweaks I made during the pandemic moved the dial up to 98%. There will always be little tweaks that I’ll want and need to make during our lifetimes (and big moves if anything unexpected or unplanned happens – *fingers crossed*) but at this point I’m just maintaining what I have in place and it’s serving us well.