As we are all quarantining during a twilight zone pandemic, having to remain inside due to smoke haze darkening our skies and lungs, teaching our own children at home during virtual school (or not for some areas) and quarreling about how is the best way to move forward during this unique time, most of us are wondering how our financials will stand up to the immediate and next few years of economic and social recovery. Twilight zone times indeed!
We are so relieved we made the "bad" decision to pay-off our house a couple of years ago. The process began about 7 and a half years ago, when I became pregnant. We set our annual goals, reached for the sky, and paid it off in almost exactly 6 years. And, we now sit in our dream home, knowing we will not have to pay another mortgage or rent payment, ever. The security and peace of mind this brings is priceless. Times like these are exactly why we did it.
Since the Great Recession, after the recovery, it seemed we all became accustomed to a soaring stock market, rising home prices, and our 2% annual raises. I am all too happy to pay $90/year Prime subscription so our dozens or hundreds of packages could arrive almost instantly to our doorstep. One click, and bam, tomorrow my package awaits! I don't have to even enter my credit card! Easy peasy lemon squeezy, as my girls say. No pain. Just that little flutter in my tummy as I clap my hands in giddy anticipation like a child on Christmas morning awaiting my package tomorrow! Dopamine rush! YAY!
But then, Covid hits China. Hmm. Then, Covid arrives in the US. Then, we cancel my daughter's birthday party the weekend before our school shutters. Then, we begin wearing masks all day in our clinic. And then, the markets crash. Furloughs. Unemployment skyrockets. Evictions deferred. Landlords mortgages deferred. Interest rates drop to 0% but banks tighten lending. No new stimulus yet, since the PPP ran out in July. Surveys show increasing numbers of people unable to make payments on housing, cell phones, and even groceries. Social unrest seems to be everywhere with many different issues coming to a head. Who knows what happens with the election and thereafter? When will we have enough herd immunity from vaccination that we can gather together without fear of spreading or contracting Covid? 6 months? More likely, a year? Will we travel the world like we used to, or will most have changed their travel habits for good? What about the way we are eating in and pinching pennies? Will we go out to eat as often as we used to? Will we go to retailers as we use to? For our family, as our Grandparents and their parents did, our nature will lean toward frugality now, just in case. The only certainty, at this point, is uncertainty.
So, if the economy takes 3, 5, 10 years to recover, will the recovery be to an economy as robust as before? Are people going to be left irreversibly behind, as we experience a K-shaped economic recovery? If the ones who make it out unscathed are only the ones with money in the markets and assets owned, what will happen to the overall economy in the future? I don't see us recovering quickly. I see many still spending like everything will be ok, which it might. However, I don't believe in a year, we will be in as good of a shape as we are now. As a nurse, I see another resurgence of Covid this fall, with many schools reopening and people growing tired of distancing and mask precautions. I see a possible bad flu/covid season, as the two occur simultaneously, and I reckon we will see productivity loss as a result. I see continuing closures, as a result of spread, and a long, drawn-out, sluggish recovery as we grapple with this for another year, until we can get populations sufficiently vaccinated. At that point, I worry the damage may be irreversible to many who do not have financial reserves and assets. Raising capital for new businesses might prove difficult and employment could possibly remain low as a result of fewer small businesses left.
Sure, I believe some will know how to pivot and be innovative. I believe true entrepreneurs will find a way to provide a service and fund it. But I worry there will not be enough support for service workers and few jobs for them to find for a few to many years.
All this to say, as a family, we planned for worst-case scenarios. We did not foresee a pandemic and the economy being forced to shut-down, globally! But, we did prepare to be in a position to live on very little. My husband's family history of a disease and early death made me want to prepare to live on an RN's salary to support a family of four while possibly paying for long-term care for him. So, we hit the mortgage, HARD! After the mortgage was paid, we hit investing in stocks with the same intensity, rolling over the same savings goal of $150k into investments (that was our goal; I would settle for $100k, if we didn't quite make it). We learned to live on one income and saved the other.
Now, our home is paid for and we have significant savings. We have a 3 year runway with cash, in case my husband loses his job for any reason, or if one of us becomes ill. Three years should be enough time to figure out another source or two of income. We have a significant stock portfolio that should provide income, should we need it to. The plan is to leave it, un-touched, until we need it, or forever. But it's there if we need it. I expect it to fall in value, as much as up to 50%, but I don't expect it to remain there for a long time, recovering in 5-7 years. We could still trim the fat from our current spending. We just moved and have spent significantly on furniture and other things needed for the new home.
During these Crazy Covid Times, we are sitting fine because of our preparing for the worst-case scenario. Many in the financial independence space will say that living in a state of scarcity will only bring more scarcity. I believe my fear of scarcity in the future motivated us to make these moves and work hard to prepare for our family. Now, I try to be humbly thankful that we have been able to prepare in the way we have. Some of our circumstances are due to luck. Some of it is from doing the work intentionally and without letting up until we reached that goal every year. And I will always plan and think about the worst-case scenario. To me, it's better to be overly prepared and never have to use resources in that way than to be caught unprepared. As Warren Buffet said, "Only when the tide goes out do we discover who's been swimming naked."
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