The shelter-in-place order to control the spread of COVID-19 has created employment and financial hardships for a large percentage of families all across the country. As we look toward the future and getting our lives and finances back in order, many people realize they need make changes in how they manage their money.
History can be a great teacher. Thinking about how people like our great-grandfathers handled their finances offers several useful lessons we can still apply today.
Lesson 1: Distinguish Wants from Needs
Great-Grandpa and his contemporaries didn’t have the option of reaching for the credit card every time they needed or wanted to buy something. Back in the day, if the family wanted to buy a new sofa, they had to make do with the old, worn sofa until Great-Grandpa managed to put aside enough money to make the purchase.
The necessity of having cash in-hand for purchases helped Great-Grandpa prioritize his spending to cover what his family needed most. It was easier to distinguish needs from wants and keep wants in their proper place. Sometimes, the sofa fund got temporarily derailed when Great-Grandpa needed to buy new shoes for fast-growing kids or a part to keep the car in working condition. The family eventually got to enjoy their new sofa – just a little later than they had originally planned.
To apply this lesson from Great-Grandpa, analyze your spending, figure out your needs, and prioritize them. Next, realign your spending to serve your financial priorities first, then work your plan.
Beware of wants masquerading as needs. For example, a car may be a need, but a brand-new, high-end import definitely qualifies as a want. Great-Grandpa would choose a more modest model to free money up for other priorities.
Lesson 2: Be Careful With Debt
Great-Grandpa had an aversion to borrowing money. His attitude, a reflection of Puritan moral beliefs, was common during his era and was even echoed by some of our country’s founding fathers. Thomas Jefferson once said, “Never spend your money before you have earned it”, and Benjamin Franklin is quoted as saying “Rather go to bed supperless, than rise in debt.”
Times have changed, and financial debt is a now fixture in the lives of most consumers. These days, the key to properly managing debt is to recognize when it can be beneficial and when it should be avoided. Borrowing money to purchase a home – an asset expected to appreciate over time – is generally a worthwhile form of debt. Credit card debt, on the other hand, should be closely monitored and kept at a minimum. This type of debt can easily spiral out of control and the high interest rates can put a strain on finances over time.
Lesson 3: Put Something Aside for a Rainy Day
Since Great-Grandpa was determined to avoid debt, how did he handle those unexpected situations that life occasionally throws in everyone’s path? He watched expenses and pinched pennies in order to build what was known as a “rainy day” fund. Having some money put aside gave Great-Grandpa a financial cushion to fall back on when the unexpected happened. Perhaps he suffered an injury and was unable to work for a month or two, or maybe the farm yielded a disappointing harvest one year. In either case, the money set aside helped the family get by when times were difficult.
These days, financial professionals call this an “emergency fund”. They recommend that every household set aside three to six months of living expenses in an easily accessible savings or money market account. It takes time to build up this level of savings, but having such a fund provides security and peace of mind when the unexpected happens.
Lesson 4: Fix It, Rather than Nix It
In today’s world, many people regard a malfunctioning appliance or other item as a good excuse to buy a newer, nicer one. Great-Grandpa would scoff at this attitude!
Chances are, a lawnmower that won’t start, a leaky washing machine, or a fan with a frayed cord can be restored to working order with a couple of new parts and little TLC. No matter what repair issue you face, a quick internet search will almost always yield a video or article about how to fix it, along with a source for the part you need. You’ll save money, build new skills and gain a sense of accomplishment!
If the job is truly more than you can handle, it might be worth having a professional do the repair. You’ll want to consider the cost of the repair and the expected useful life of the item against the cost of replacement.
Lesson 5: Don’t Throw That Out!
Great-Grandpa, out of necessity, embraced the old proverb, “Waste not, want not.” When something outlived its original purpose, he and his family found ways to repurpose and reuse. An old bucket that sprang a leak might be used to haul corn to feed horses or as a planter to grow herbs in the backyard.
That same philosophy can still work today, empowering people to save money and reduce the amount of waste sent to overflowing landfills. Think about all the ways that you can reduce waste and reuse things in your everyday life. Don’t throw out the worn towel or holey t-shirt – cut it up into rags instead. Empty glass and plastic food jars can be repurposed into storage containers. Plastic grocery bags can be repurposed as garbage bags for small trash cans. Instead of pitching leftovers, turn them into lunch the next day or freeze them for later. Unleash your creativity and ingenuity, and you’ll be surprised with what you can do.
Recovering financially from the crisis may take some time, but applying some of Great-Grandpa’s techniques can help make us stronger in the long run.