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Making Up For Lost Time: Prepping for Return to Normal Spending in 2022

Making Up For Lost Time: Prepping for Return to Normal Spending in 2022

I originally wrote this blog post in July 2021. I am updating the post as a great deal has changed in our lives since last summer. We are still dealing with the impact of COVID on a daily basis; albeit, it is in many different ways. Our consumer habits are much closer to pre-pandemic patterns. We are dining in restaurants and shopping in stores. Travel is returning to more normal levels as well. All of that said, we are still a country very much dealing with this virus. Our hospitals are better equipped to handle life-threatening cases and, fortunately, those case numbers are falling. We are still seeing friends and family members test positive at a high rate, and we are frequently utilizing home testing kits to determine the cause of symptoms. I believe that most people are coming to the realization that COVID will be us, in some form, for many years to come.    

Through the first year and a half of the pandemic, we heard the phrase “new normal” ad nauseam. Pundits and media types love to tell us that this is a different time, situation, or environment than we have ever seen before. I tend to look skeptically at these prognostications because history has a way of repeating itself. However, this won’t be a new normal as much as a move toward “back to normal,” not only in our personal and social lives but also in our financial lives. 

In the chart above, 2020 became one of only two years since 2000 that Americans’ personal savings rate eclipsed 10%. Click here for the interactive chart. Source: Statista.com

Savings Rates Are Off Of Their Early Pandemic Highs

We all were forced to adjust our lives and adapt to a COVID world. We all stayed at home more and limited our exposure to crowded situations. A silver lining emerged from this very difficult period in our lives by way of our personal savings rates. Personal savings rates in the United States skyrocketed in 2020. The savings rate in 2020 was almost double that of 2019 and more than doubled the respective rates of 2016 and 2017

That’s changed over the last year. Savings rates have fallen off of their pandemic highs, dropping in all but two of the last 13 months since March 2021 and trending below the 10-year average. The recently released rate for the month of April shows that the savings rate for Americans hit its lowest level since 2008 (4.4%). This is likely a result of people’s spending habits returning to pre-pandemic levels as well as an increase in the cost of goods. Inflation is having a very real impact on household budgets. For this reason, we should review our cash/emergency savings levels and determine if we need to allocate more of our income to short-term savings accounts. The economy is facing headwinds that we haven’t seen in some time, and we should all be prepared for a possible slowing of economic growth. 

The Challenging Beginning to 2022

The domestic stock markets are dealing with myriad economic issues as we near the mid-year point. Supply chain issues caused by COVID shutdowns are still generating disruptions with companies trying to deliver finished products and keep shelves stocked. As a result, companies are having to forecast lower revenue projections, and the equity markets are reacting negatively. This, in conjunction with a bond market facing strong indications from the Federal Reserve of significantly higher interest rates, is stressing the fixed income markets and yielding an uncertain second half of 2022. The country is also seeing a shift away from work-from-home employment to workers going back to offices, stores, and production facilities. This puts pressure, particularly on technology companies such as Zoom, DocuSign, and others, which soared in the WFH environment and are now struggling to adjust to employees traveling back to work.

Assess Your Financial Situation 

Your financial life is in a different place than it was at the beginning of 2020. 

We are all attempting to find the correct footing for ourselves and our families in this post-pandemic, but still lingering COVID world. From a financial perspective, it is important to keep in mind that correctly positioned emergency funds are imperative. It is difficult to predict how 2022 will finish and where the economy will sit at this time next year. For that reason, reviewing your financial plan and understanding the impact of recent market downturns have had on your plan is critical. Prioritizing your financial situation during these times will most likely produce better results as the country hopefully gets beyond this current phase of COVID. 

Nate Condon, Financial Advisor