2020 has changed how we work, how we budget and how we think about our homes. To help you make sense of it all, we teamed up with Vox Creative to create “Money Talks: Home Habits,” conversations about managing finances in the current environment. We asked a panel of specialists about our changing relationship with work, money and home. Watch below to hear what they said.
Money Talks: Home Habits
Let’s talk managing money in our new at-home lifestyles
Working from home
From navigating the challenges of working remotely to reworking your work-from-home budget, we unpack the many ways remote work is impacting our lives.
Melissa Bell: Hi, I'm Melissa Bell, publisher of Vox Media. Welcome to Money Talks: Home Habits powered by Bank of America. This is a virtual explainer event centered around the new meaning of home, and how its purpose has suddenly shifted.
Speaker 2: More Americans are working from home now than ever before. What does this shift mean for personal finances and careers? Even before the coronavirus remote work was gaining popularity. It's estimated up to 30% of [00:00:30] the workforce will work from home multiple days per week by the end of 2021. And that's going to impact average working Americans in several ways.
First, it could mean more money in people's pockets. It might also save time. Americans who drive to work, spend up to 54 hours per year in traffic. One great use of that extra time, re-examine your budgets. In evaluating how your new work-from-home lifestyle impacts your budget, consider what are you saving on at home? What expenses may be rising? How can you adjust your monthly budget accordingly?
[00:01:00] It's important to note that many people don't have the option to work from home and tens of millions are unemployed, which is why careful budgeting is more important than ever. The impacts of the coronavirus may have affected many things, but refined planning can keep your financial well being a priority for the future.
Melissa Bell: Today I'm joined by Laurel Farrer, Remote Work Strategist and Advocate. Hey Laurel.
Laurel Farrer: Hi, thanks for having me.
Melissa Bell: As well as Ross Mac, Financial Educator, Musical Artist & Entrepreneur. [00:01:30] How are you doing Ross?
Ross Mac: Phenomenal, thanks so much for having me.
Melissa Bell: I want to start Laurel with you and ask what are the future implications of this more prominent working from home culture.
Laurel Farrer: Where to begin? This is going to change our lives in many, many ways. Obviously we can wear sweatpants to work, and that's fantastic, that's a great place to start. The adoption of remote work has fast-forwarded at least 10 years just within the span of a few weeks. So remote work, like it or not, is part of the new normal.
[00:02:00] At least 30% of professionals will continue to work from home permanently from this point forward. So it's important to note that remote work is going to be part of our business, even if we go back to the office, our colleagues, the vendors that we work with, our coworkers, at least one in three people that we work with will be a virtual team member. And therefore we'll need to understand how to collaborate in a virtual team, regardless of our personal [00:02:30] location.
Melissa Bell: Ross, I'd love to hear from you both, what are some of the positives about working from home, and what are some of the challenges that we should be aware of?
Ross Mac: This is going to be something that is going to change everyday life that we know it. However, there are going to be a few negative implications that come with this. Right? At the end of the day, there are going to be some communities that are going to be disproportionately impacted than others. Right?
At the end of the day, only about 30% of Americans can work from home. Right? And of those 30%, over 80% of those to be White Americans. [00:03:00] So therefore we're talking about one in five Black Americans are only able to work from home. And about one in six Hispanics can work from home.
So here we have to start understanding that there's going to be vast disparity among groups, but the actual problem is not just there. You have to now think about those 80 plus percent of Blacks and Hispanics who actually have children. In conclusion, there is no way around it. I think work from home is still going to be here to stay, and it's only going to be becoming more prominent. But as we start to make this transition, [00:03:30] I would love to see other groups start to get a little more support when it comes to this.
Melissa Bell: Ross, I think that those are really important points for us to be keeping top of mind, particularly the impact this has on groups that will have a much harder time working from home. You mentioned particularly the challenge parents face. Now they're not just working from home, but oftentimes they're having to teach from home as well with schools out of session.
Laurel, can you speak to how this is impacting parents and [00:04:00] what steps they can take to adjust to this remote culture?
Laurel Farrer: Absolutely. And I can speak from firsthand experience because I am a working from home parent, and it was an incredibly stressful time for me. Even though I have been working remotely for 14 years, when you throw in that new dynamic of learning from home, and working from home all at the same time, it feels almost impossible at times. So if we're going to make this sustainable, it's definitely going to need to be a collaboration [00:04:30] between all of the members of the remote work ecosystem.
That means governments, communities, workers, employers, and products. We're all going to need to work together to figure out what the new balance is. Because on one hand we can't have the schools closing and expecting parents to be both. And then on the other hand, we have employers that are asking the parents to come back to work. That will only contribute to the privilege and diversity problem that Ross was talking about earlier.
[00:05:00] So we really need to make sure that we are working together as communities to figure out what the next normal is going to be, and make sure we can support all types of remote workers regardless of what their household situations are.
Melissa Bell: Thanks so much for both of you. I think that we do have a moment to really look at some of these challenges and opportunities from a holistic standpoint, but also of course, from an individual standpoint. How should we be thinking about our own personal finances at this moment?
[00:05:30] Sharon in Hartford, Connecticut has submitted a question for you both. She'd like to know what expenses have been eliminated during this stay at home time. And how are you choosing to spend that extra money? Additionally, what, if any new expenses have you incurred? And how are you budgeting to cover those costs?
Ross Mac: So, I would look at this as an opportunity to truly say, "What are you able to save?" Right? You have to really say, "How can I now recalibrate and now reassess what have in my budget?" I think it's very important to actually write [00:06:00] it down. You need to first look at where were you in terms of spending pre-COVID, and now look at it where you're at post-COVID.
If you're one of the lucky people that are able to work from home, you're going to have a lot of new savings. So you're going to be able to say, "Now I'm going to have savings when it comes to transportation costs, no longer driving to and from work." You no longer have to worry about maintenance costs when it comes to vehicles. When it comes to your clothes, you're no longer thinking about dry cleaning. You're now able, [00:06:30] like Laurel said, you able to now go to Zooms with sweatpants on.
And then when it comes to eating out, you're not going and getting coffee before work, as well as at lunch. And then for a person that's traveling an hour and a half, to and from work, when you get home, you're probably tired. So you're ordering take-out. Now you're at home, you're able to cook.
And one last saving that a lot of people, that I would probably put a disclaimer, but you might want to assess is the idea of being able to have tax savings. Now that you're working from home, you're now able [00:07:00] to utilize your new work office as something that you can actually write off when it comes to taxes.
You're able to write off rent or mortgage expenses. You're able to write off depreciation of assets. Because one thing that COVID has taught us all is you want to have a fully-funded emergency fund; that is having three to six months of expenses. Necessary expenses in the event that something like COVID was that ever occur again, we want to make sure that you and your family are more than likely to be able to survive with three to six months of expenses.
Melissa Bell: [00:07:30] Thank you so much, Ross. I think the emergency fund is definitely a high priority for a lot of folks right now. What about some of the other expenses that we have to put out? For instance, I am debating the purchase of a very expensive office chair because it turns out my chair at home does not help my back feel very good.
So, Laurel what do you recommend people focus on in terms of new expenses that they're facing, and also new saving opportunities?
Laurel Farrer: [00:08:00] Yeah, often we get it into our minds that we have to set up this incredible office; we need the bookshelf, we need the desk, we need all of this stuff in order to deck out this incredible office. And that is completely irrelevant because we have to remember that in the remote work world, our offices are software. And so all of the offices, and the infrastructure, and the tools that we need in order to do our job are all going to be on the internet.
So that means that in terms of [00:08:30] physical equipment, we can get by with very, very little. So basically a really nice setup for a remote worker is a good laptop, good webcam, good mic. Like you said, a good chair because we are still physical beings, and we still need a comfortable place to sit. So invest in those ergonomics. And then maybe a couple of accessories like some ring lights, some good headphones, and you should be all set.
So [00:09:00] keep it light, keep it lean. And that means that you can stay mobile and you can move around to different locations. Because what's the point of having this workplace flexibility if we're not flexible? If we have to stay in the same spot even in our home office, it's kind of a bummer. So keep it mobile so that you can move around and leverage location in your productivity. And you can move to spots that make you more productive for certain types of tasks.
Melissa Bell: [00:09:30] Our next question comes via video and it's from Ryan in Hampton, Virginia.
Ryan: Hi, my name's Ryan and my question is that now that my company has shifted to working from home, I'm finding that my job has many responsibilities that it's never had before. For example, hosting virtual events pretty much on a weekly basis. On a daily basis, hosting virtual conference calls with staff, volunteers, and just people that we work with in the community. [00:10:00] I love to ask for your advice on how to handle these new responsibilities, and also just how to strike a healthy balance between my work and personal life during these times, because definitely easier than ever for those lines to get blurred doing this work. Thank you so much.
Laurel Farrer: This is a great question because it's something that we're all dealing with as we are adopting remote work into our careers, as well as our personal lives.
So let me explain [00:10:30] what the three remote work killers are, or the three things that typically sabotage remote work success. Those are isolation, and not necessarily social isolation, but informational isolation when you don't have the resources that you need in order to do your job, which people are a resource when you're in the office. So isolation, burnout, which is exactly what you're talking about, not really understanding how to enforce those work and life boundaries. And then micromanagement.
[00:11:00] So it really does take all of us, both the side of the employer, as well as the side of the worker, to make this dynamic work. How do we continue to work from home in a way that is healthy and sustainable for our jobs, as well as for our lifestyles?
So to zoom into your point specifically about burnout, this is really, really important that all of us create boundaries around our work and our structure, [00:11:30] in order to maintain productivity and maintain sustainability. Because if we continue to fall into that trap of working whenever work is accessible, then that means we're going to be working all the time. The average remote worker works two to four hours a day longer than an in-office worker.
I also like to follow the 10, 10, 10 rule, which is look at something 10 feet away, every 10 minutes, for at least 10 seconds. And that can really help your eyes adjust [00:12:00] and not get locked into a certain distance of which is your screen. Little things like that, like our habits can make a big difference in our ergonomic health.
But what are the criteria that make remote work different than in-person work? That's what's going to carry through. Those are going to be elements like asynchronous communication, communication in which we are collaborating as a team, but that conversation and dialogue isn't happening real time, that's going to be [00:12:30] a massive change. The rise of self-management and autonomy, and as well as result-based tracking; this is how we are monitoring productivity of our employees when we can't see them. We're measuring accomplishment instead of activity. All three of those things will define the new normal regardless of our workplace location.
Melissa Bell: Ross do you have any advice for how people can handle the new working from home work [00:13:00] life balance, as well as just some of the new norms in a remote culture?
Ross Mac: Yes, without a doubt. When I look at this, I look at this as saying, a person needs to truly understand what everyone's expectations are. You need to know what your boss's expectations are, as well as your subordinates. I think you guys got to get on a very good regimented schedule with it, whether it's Zoom meetings every day at XYZ time. And I think now is the perfect time to actually over communicate.
And then now it's really a time to just be more [00:13:30] productive and be more creative, because now you're no longer being micromanaged, you're not having anyone over your back, but you have to actually say to yourself, "Now you're being measured more on your output, as opposed to just face time in the office." So it's all about trying to find that healthy balance.
Melissa Bell: Ross. That's a really interesting point. And it also makes me a little hopeful because there's an opportunity here if we are thinking about better communication systems in a remote workforce, I do know that that plays into creating more [00:14:00] inclusive work culture that doesn't just rely on the informal networks in an office environment.
So you two are giving me some hope that perhaps we can use this moment to truly fix some of our issues with work culture overall. So thank you both so much for joining us today, Ross and Laurel. It was a pleasure to talk to you both. I gained a lot of insight on the future of working from home.
Thank you again to everyone for watching Money Talks: Home Habits, powered by Bank of America. We hope this event was able to provide some guidance and help you prepare for a better financial [00:14:30] future.
Up to 30% of the workforce will work from home multiple days per week by the end of 2021.1
Saving when home
Whether you’re experiencing a sudden loss of income or a sudden influx of savings, we explore how to adapt your spending and saving for this unique moment.
Melissa Bell: Hi, I'm Melissa Bell Publisher of Vox Media. Welcome to Money Talks: Home Habits, powered by Bank of America. This is a virtual explainer event, centered around the new meaning of home and how its purpose has suddenly shifted. Today, we'll be focusing on saving when home and how to manage and prioritize savings during such an uncertain time.
People spending more time at home means changing spending and saving habits. But what's the proper way to save, and what are we [00:00:30] saving for? For some, the transition to spending more time at home comes with automatic savings. The US personal savings rate jumped to 33% in April, the highest ever recorded. Still, in a June 2020 survey, 23% of Americans reported that a lack of emergency savings was their biggest financial regret. So how can people put any new found savings to good while still at home?
An emergency fund should be the foundation of any savings plan. Emergency funds should cover six [00:01:00] to nine months of regular household expenses. Saving, however, may not come as easily for those whose incomes have been impacted. That's why it's even more important to set aside time to go through your monthly expenses and identify any that can be reduced. Whether you've found unexpected savings in recent months, or have had to cut back, take the time to prepare for the future by reevaluating your savings priorities today.
I'm joined by Tonya Rapley, a financial educator and founder of My Fab Finance, [00:01:30] Tonya. It's great to have you here today.
Tonya Rapley: It's wonderful to be here.
Melissa Bell: One question that is really top of mind for me is centered around the folks who have been impacted in a disproportionate way because of the coronavirus. What financial advice do you have for them?
Tonya Rapley: Yeah. Melissa, thank you for asking that question, because as a financial educator and working in this field, I have seen, and I've worked with people who even before coronavirus were financially vulnerable. And what we are finding are [00:02:00] people, particularly people of color and people who might be deemed essential workers who are working in, whether it is required fields, or essential fields such as in the grocery store, farming, et cetera, things that really help ensure that our economy stays floating and that our needs are met, are vulnerable as well. And they don't often have those protections, but they haven't had them.
And that's one of the things that I'm hoping that this kind of starts a conversation of what it looks like to [00:02:30] bring people up to equally, before we even have something like the coronavirus start. And so when working with clients and helping people kind of navigate, "Okay, what do I do? I'm already financially vulnerable. What can I do to kind of alleviate some of this?" If anything, the first thing is we got to comb through those expenses. What was helping you, or what worked before coronavirus might not work now. So what you could afford then, you might not be able to afford now [00:03:00] because maybe your hours have been cut back, or maybe now you have additional health cost, or maybe you're responsible for your childcare and so forth. So you aren't able to go into your office, or you're not able to do things you used to do to bring in income.
And so we need to cut back on those expenses and we can do that by looking at our budget, looking at what's going out of our household every single month. And then cutting back on the things that aren't necessary. During this time we really want to be focusing on those essential items. The next [00:03:30] thing is, I would suggest that people take advantage of help, or assistance that's available to them. I know that sometimes we might not want to or feel like, "I got this." But if there's any time in history where there's more help available, it is right now. So there are resources available. I know here in Los Angeles where I live, they have a rental assistance program. They're rolling out when everything first started happening. They were forgiving student loan payments for a certain amount of time and mortgage payments [00:04:00] for a certain amount of time. A lot of utility companies have been understanding and are working with individuals, or working with their customers.
So look to see what help is available on that side. But then also, if you need any social services, or anything of that nature, find out what you need to do to make sure that you're getting groceries and so forth. Look into grocery co-ops, or food pantries nearby and so forth, so that you can make up some of that difference in what you were spending in groceries. And maybe you can reallocate the money from your budget to something [00:04:30] else. And then the last thing I really want people to do is really think about stabilizing and what it looks like to stabilize your financial foundation, because that's important. And I know that people might be in crisis mode and like, "I just can't figure out how to get to XYZ point."
You're not alone. There's a lot of people who are trying to figure out how to get to XYZ point, especially when the point has been changed as it has. I don't think any of us expected for 2020 to look this way and to have this experience this year. [00:05:00] So alter your plans. It's okay to alter your plans and change your expectations of what was expected for you this year. And just realize that you're not alone. I think that, especially for people who might feel like they are vulnerable, or feel even more vulnerable, you're not alone. There are services there to help you and we'll get through this.
Melissa Bell: Thanks, Tonya. I think that's a great point. One thing that I think you mentioned at the very beginning is how a lot of these issues predate [00:05:30] coronavirus, and this moment is perhaps exacerbating them, but also revealing them. Now, I would love to bring on some guests who are excited to ask you some questions. Coreen, welcome to today's discussion. I'm looking forward to what you and Tonya have to talk about.
Coreen: Hi, Tonya. My question is, like a lot of other people, I've been saving more money than usual in the past few months. I'm not going out, shopping as much. I'm not eating out as much and spending money socializing. And I'm wondering if [00:06:00] for those reasons it's a good time to spend a little bit more money than I might usually on large purchases. Despite the fact that I still have debt that I'm working towards paying off. And I'm wondering if there's a balance of how much more money I can spend on myself and go into paying off my debt.
Tonya Rapley: Oh, that’s well, that's good news that you are saving more money. I think that as we've spoken to others and when I'm talking to other [00:06:30] clients I work with, that's been a positive byproduct of this entire experience. But what kind of large purchases are we thinking? What do you have in mind?
Coreen: I think there's two categories. One is just splurging a little bit more on clothes, for example. Every other month usually I'll make an online purchase and maybe I'm more prone now to spend a hundred dollars more than I would have before. And then the other side is [00:07:00] just, for example, I'm moving apartments next month. And I have my eye on a few furniture pieces that probably I wouldn't have considered before. But now I'm like, "Okay, well I haven't spent so much money the last few months. Maybe it's okay to buy these now."
Tonya Rapley: Okay. All right. So furniture and additional clothes. Okay. Furniture makes sense to me, but clothes, I'm like, where are you going? Take me with you. Where are you going? Because I know I'm not going any places, but so just think about this, so [00:07:30] there's needs and there are wants. So when it comes down to our needs, that's shelter, that's food, that's clothing and so forth. But then there's wants and these things probably do fall into the categories of wants. You have an apartment, you're thinking about, "How am I going to furnish that apartment?"
And we have clothes, it's like, "Well, maybe I want a few different pieces of clothing". So these are wants and there's nothing wrong with wants. But when we're thinking about moving into priority, making wants a priority, then we have to look at how are we doing financially? So dialing [00:08:00] back to, okay, moving into this apartment, do you have enough money set aside just in case to cover that rent. Because what we don't want to happen is that you spend quite a bit of money on furnishing this apartment, we haven't put money aside in saving for this apartment. And so something happens and now we've got to sell the furniture and we have to move out, because we haven't been prioritizing putting money aside to save for that.
So there's nothing wrong with spending money on your wants, and there's nothing wrong with making it a priority, as long as you have already previously prioritize creating that emergency fund and that savings [00:08:30] cushion, so that if things were to happen, you'd still be able to pay for those basic needs. How are you doing on that? Have you been able to save to create that cushion?
Coreen: I would say have that cushion, but like everyone else, it doesn't hurt to always save more money. I always want to see that number go up. So I'm looking for what that balance could look like.
Tonya Rapley: Yeah, definitely. And are you currently working?
Coreen: I am. And I'm very lucky to have job security [00:09:00] for the near future, at least. I see my income continue to come in throughout coronavirus.
Tonya Rapley: Okay. Well that is good news. And so you're in a pretty good position. The thing with furniture, it doesn't mean that you're going to have to buy the most expensive furniture in the store. It means that we're going to shop around for a good deal, and make sure we're getting the best deal. And so maybe there's still a way to save on that and still put money aside in savings. It doesn't mean we're going to blow everything out the water.
So keep that in mind as you're looking at your wants and so forth. [00:09:30] There's this theory, whereas in certain major life experiences, or purchases lead to more expenses, such as moving into apartment, or moving to a specific side of town. Now you feel like you have to have certain things in that apartment, or a certain lifestyle, or reflected lifestyle to participate in living on that side of town. Or, maybe it's certain clothes, and certain wardrobe. So we just have to be mindful of that, what we call lifestyle creep and those additional expenses creeping in.
But I think that you sound like you're pretty solid on that. [00:10:00] So as far as your other financial goals, before we think about splurging and taking care of wants, how are you on your other financial goals? So do you mind sharing maybe one short term financial goal and one longterm financial goal that you have?
Coreen: Sure, I guess, well, they all relate to bills and loans and things of that nature, and debt. I do have a lot of debt and I also know that for example, I accumulated a bunch of medical debt this past year, and I know I [00:10:30] have a lot more work to get done in the future. So short term, just paying my credit card bill and making sure I can get to paying it off monthly, or quicker than I have been in my history. And then longer term is just to pay off my other medical. I have three different loan servicers for my educational loan. So chipping away at all of those.
Tonya Rapley: Okay. All right. Yeah. And [00:11:00] it sounds like quite a few people are dealing with. And so when we think about splurging on our wants and so forth, it is also how am I doing on my financial goals? And if we're meeting all of our markers for our financial goals, and I think that since you have like a few debt related goals, debt elimination related goals, let's create those different markers where we say, "Okay, I want to pay this bill down by 25%." Or, "I want to pay it down to this amount, then the next amount, then the next amount." So that we know, okay, I'm hitting my financial [00:11:30] goal mile markers, at least now I feel more comfortable spending on my wants.
But if you don't break down your larger financial goals into smaller goals, then it kind of can feel like, what am I even doing this for? So I want you to think about what the smaller goals are and those larger goals. So maybe it is, "All right, I have a medical bill for a thousand dollars. I want to pay off 250 of that." So I'm left with 750. Or, "I want to pay off half of that." That can be a micro goal within your larger goal. And once we reach that micro [00:12:00] goal, it's like, "Okay, now I can treat myself a little." But we want to make sure that we're making progress on our goals before really splurging on those wants. So does that make sense? Does that feel realistic and comfortable for you?
Coreen: It definitely does. And I think I have a followup question then, which is, because all of my loans, I'm paying them all on time and in the increments that they has given me, making the minimum payments. So would this be a good time to just throw money into those consciously of course, [00:12:30] but conscientiously, not too much, but throw that money I would have spent on clothes, the extra hundred bucks into loans. Is that a good idea?
Tonya Rapley: Yeah. If you can amp it up, like I said, now is the time to do it. Most of us aren't going any places, or going anywhere and so forth. So now is the time that you could really amp it up and put that money towards paying more than the minimum if possible.
I understand that dealing with creditors and so forth, it can seem a little [00:13:00] daunting, or especially if you haven't done it before, or aren't used to it. So one of the things I actually recommend is go to bettermoneyhabits.com/heretohelp. And they actually have a few resources there that can help you prepare for these conversations, as well as help ensure that you're more comfortable having them and more likely to get an outcome that works in your favor. So you don't have to go into this alone.
I think if we have money to spend on clothes and we have money, and the clothes that we don't need. There are certain things it's like, "Okay, I need to transition my wardrobe to a winter wardrobe." Or, "I need [00:13:30] to do this for workplace attire, or safety precautions." but if it's not something that you need, then I would say you just use it to get ahead when it comes to your debt elimination.
And then here's the other thing to think about when it comes to purchases, I think a lot of times we look at "I'm spending XYZ amount of money on this, so I'm spending a hundred dollars on clothes", but it's like, how much of your life did you put aside to earning that? How long does it take you to make a a hundred dollars? And is it worth like, do you want to use it towards your financial goals, or do [00:14:00] you want to use it towards clothes, which is essentially fulfilling someone else's goal? So think about the money you spend that way too. It's not just money you spent, it's hours of your life that you put towards bringing in that money. So you want that money to work best for you.
Coreen: Thank you. It seems so simple, but it actually feels more impactful coming from you with the full rounded perspective. So I really appreciate that.
Tonya Rapley: You're welcome. And I'm really excited that you're thinking about things like this. I'm really excited that you're getting your own place and you're moving in and hopefully [00:14:30] you find a few items in there to help furnish it inexpensively. So thank you for having such great questions and I'm excited for you.
Melissa Bell: And next up, we're here with Jen from New York. Take it away, Jen.
Jen: Hi Tonya. My name is Jen as introduced. [crosstalk 00:14:48].
Tonya Rapley: Hi.
Jen: So I'm a baker and I laid off during the coronavirus. And because the restaurant industry is so in flux at this moment and it's really uncertain on what kind [00:15:00] of jobs are available, I'm looking to kind of pivot into new direction, whether that be something related to my field or not. And my question is how can I plan to save money enough to focus on looking towards a new career while this is going on?
Tonya Rapley: Yeah, Jen, the restaurant industry has been hit really hard, but as a baker, I'm curious, what's your favorite thing [00:15:30] to bake?
Jen: I love baking cookies and I'm really into decorating cakes. I would love to pivot into that in the future, but I have a tiny apartment and I really can't put it all in one go in that fridge.
Tonya Rapley: I understand. You need commercial kitchens and all these other things like that too, but I love cookies, so if I lived in New York, I would definitely be one of your, I would buy cookies from you right now, because I'm [00:16:00] not the best baker. But I think that you're wise to think about your different options. If you really love baking, I think that there are certain ways that you can continue to grow in that career path.
But thinking about saving, I always say savings is essential regardless of what you have going on. So unless you just inherited a large amount of money, or unless you've been saving, and so you're financially comfortable. But if you're not in any of those positions, which most people aren't, I would [00:16:30] definitely recommend that we focus on, okay, so what are different ways that we can leverage the skillset right now to add to our savings, so that we have that three to six month cushion that makes us feel comfortable.
Outside of coronavirus, I would recommend that someone has three to six months and savings. Now, it's like if you have the ability, then six to 12 months of savings. Because one of the things about economic downturns is we don't necessarily know how long they could last. So this could be something that's over at the end of this year. This could be something that is [00:17:00] ongoing until the next three to four years. And so we want to be as financially prepared as possible.
Jen: In the beginning when I was laid off, I applied for unemployment. So I've been receiving my weekly and then the additional payment on top of that. And again, I've been reaching out to certain friends who want any pastries and offering them on a friend to friend basis, or a lower rate than I would probably charge for something [00:17:30] normally. And so it's been a slow climb in finances, but I make ends meet with the unemployment and just supplementing myself a little bit, but I don't have anything part time going on. I'm not doing any side gigs that require me to be around a lot of people. So it's just more on the need basis.
Tonya Rapley: [00:18:00] So we need to think about other ways that we can bring in that revenue, so that you can begin to pivot and transition. And so we're thinking about it, it's like, "Okay, what are different things that I can do?" I think that now is the opportunity maybe for you to start growing your online community, because there are people who might not live near you, who are willing to pay for access to some of the knowledge you have, or show up for, they have time they're at home. They're like, "Hey, I'm going to bake a cake with Jen today."
And so you could say, " [00:18:30] I'm going to show up at this time and I'll be baking a cake on Instagram live, get your ingredients. And you can do it along with me." Or, you can start to maybe deliver some of these ingredients to people, or help them decide, "This is exactly what I need." So I think one of the appeals to a lot of those delivery food boxes is that they premeasured the contents for you. But I haven't seen a dessert one. And so maybe that's small curated thing that you could offer, just so that when you bring in that money, you can put it into your savings account.
[00:19:00] So it is important to think about, "Okay, I'm bringing in this extra money, I'm putting it directly into my savings account instead of using it on something that's non-essential, or not important", because that's going to help you create that transition fund. How do you feel about that?
Jen: Yeah. So focus more on saving and longterm than just taking the money that I've earned right away and spending it right back.
Tonya Rapley: Yeah. Yeah. Especially if we're thinking about a transition and I'm curious, what kind of transition are you looking at? I know that you said maybe [00:19:30] in your industry, but what other options are you looking at?
Jen: Well, I like the ins and outs of publishing. If I've ever been able to put a cookbook together.
Tonya Rapley: It can seem arduous, especially given that finances might already be constrained. There are so many resources online. One of my favorites is Canva, where you can publish your own PDFs and so forth. And they have all these nice images and you don't have to be a design expert in order to create your own book, or create your own [00:20:00] cookbook, or whatever you may want to create. And then you can upload that. And the great thing about creating something is that you'll have passive income.
And so I don't think enough people also talk about passive income when it comes to your saving strategy and your longterm goals. But it is looking for ways that are active. So baking a cake is active income. It requires you to go out and get the ingredients, bake it, sell it to someone, arrange the delivery of it, or whatever it may be. Whereas in passive income, it's like, okay, maybe you can put your recipes together. Maybe [00:20:30] there's this awesome cookie recipe that you developed and you want to sell it, and a few others that you want to sell. You can upload those online and you could still be selling those five years down the line, even after everything has settled. You can still bring in that passive revenue from it. You can make it so that your passive revenue goes automatically into your savings account.
So it's being deposited into that savings account. So you're still automatically building your savings, but passively. [00:21:00] So think about that. There are different ways that you can build it. It doesn't necessarily have to just be active. But I'm looking forward to what you come up with. And I wish that I could taste some of your cookies, because I am a cookie monster.
Jen: Okay, well, we'll stay in touch. Anytime you want something.
Melissa Bell: Tonya, thank you so much for this great discussion. You had some fantastic advice. I really appreciate it. And a big thanks to our guests who shared so much about their personal situations. Thank you again to everyone for watching [00:21:30] Money Talks: Home Habits, powered by Bank of America. We hope this event was able to provide some guidance and help you prepare for a better financial future.
23% of Americans reported that a lack of emergency savings was their biggest financial regret.2
Rethinking home options
Now that our homes have become workplaces, childcare centers and more, we dive into the housing market, mortgages and new considerations when renting or buying a home.
Melissa Bell: Hi, I'm Melissa Bell, publisher of Vox Media. Welcome to Money Talks: Home Habits, powered by Bank of America. This is a virtual explainer event centered around the new meaning of home and how its purpose has suddenly shifted. Today, we're rethinking home options and how, now more than ever, people are reconsidering where it is they decide to call home.
Speaker 2: The coronavirus and subsequent economic downturn has caused many Americans to reconsider where and how they live, [00:00:30] but is now a good time to invest in your home? As people spend more time looking at the four walls around them, it's tempting to think of greener pastures. In April, 39% of urban residents reported the coronavirus led them to consider relocating to a less densely populated area, and it's happening. That's partially why, despite economic changes, the housing market has remained strong. In April, the median price of an existing home hit a record high. If you're considering a new place, [00:01:00] remember to account for one-time moving costs in your budget.
What if you already own a home? Low interest rates mean that now may be a good time to consider refinancing or taking out a loan for a home improvement project. Low-cost upgrades like investing in a new front door can help boost resale value. As the longterm effects of the current climate become more apparent, it's no wonder so many Americans are rethinking their future home options.
Melissa Bell: We're joined today by Michelle Meyer, Head of US Economics [00:01:30] at BofA Global Research, and Erin Lichy, a leading New York City real estate agent and entrepreneur. Erin and Michelle, thanks so much for joining us today.
Erin Lichy: Thanks for having us.
Michelle Meyer: Sure.
Melissa Bell: Michelle, let's start with you. We all have been discussing a little bit off-camera how home has changed. It's now not just a place where you live, and it's also a place where you work, it's a place where you might school your children, it's a place where you might be filming a discussion [00:02:00] for Bank of America. Can you tell us a little bit about what home means to you in this new environment that we're all living in, and how we should be redefining our financial priorities?
Michelle Meyer: Sure. Thank you for having me. It's really nice to be here and to be able to talk with you all about how we think about housing, which is such an important part of everybody's life. So, yes, it's where you rest your head at night. It's where you build your family and your home, and it's a very personal [00:02:30] decision in terms of how people think about housing, whether to buy, whether to rent, to live in a city, to live in a suburb, an apartment, or a home, to live in a rural community. So there's so many personal elements, of course, that go into this.
And I think what's really interesting about the environment today is that some of those decisions have been switched very, very quickly as a result of the unprecedented times that we're in. So I've recently just saw some data from the United States Postal [00:03:00] Office that showed that in April, four times as many people forwarded their mail out of New York City. So that's just one anecdote that shows how people are changing these decisions around housing very, very quickly as conditions around them change.
Now also extremely importantly, housing is a very big investment. So if you do become a homeowner, it's going to obviously require a lot of finances, use a lot of your balance sheet, per se, in terms [00:03:30] of being able to afford the down payment, afford the current mortgage payments, and it's a big liability. Most people do take on a mortgage when they purchase a home, so that's going to be a big debt burden.
Now, you also have to think about it in terms of a place that you can store your wealth. Home prices typically do rise. Now, of course, we learned from the '08-'09 period where there was a big decline in home prices, but outside of that, in postwar history, for the most part, home prices do trend up, and if [00:04:00] you have the ability to be flexible in terms of how long you might stay in that property, then generally speaking, it's thought to be a really good way to diversify your investments and to build some wealth for the future.
Melissa Bell: Erin, what are you seeing in the market, and how are you seeing people react to their changing priorities around setting financial goals for themselves around their changing home goals?
Erin Lichy: So I'm seeing something very interesting and something I've never seen before. What I'm seeing is [00:04:30] people are sort of living in a more day-by-day basis. I mean, usually all my clients have plans. They know exactly where they're going to be. They know where they want to invest next year. They have these goals as opposed to now, where it's sort of like, let's see what happens next week. Let's see what happens with the school system. Let's see what happens with my job. I don't know if we're going to be able to open my office.
But with that, what's really happening is homes are becoming much more multifaceted. [00:05:00] And what I mean by that is there's a work-from-home environment. There's definitely a work-from-home component. So whether you're in an urban area or you've moved out... I'll start with the urban areas. What's happening is people are starting to say, "Okay, I really do need that extra bedroom because I'll probably be working from home." So then it's maybe they're renting a bigger apartment, as opposed to if a family's moved out of the city because of a situation with possible school closure. What we're seeing [00:05:30] is they need to make sure that there's enough space in that home for them to be able to work, and for the kids to be out of the house.
On the other hand, I also see a lot of people considering renovations right now. The reason for that being is A, they're going to be spending more time at home, and B, if it's an investment, if it's an investment property, this might be a really good time to renovate because you may not be getting what you would've expected to get in rental income or in a sale. [00:06:00] It's really not black and white. For probably the first time ever, there's so many different elements that are part of the decision process.
Melissa Bell: In a time of a lot of uncertainty, home can be one place that you can have some control over. So our next question is submitted by Adam in Indianapolis. Adam asks, "It seems like houses are selling at an all time high. Conversely, interest rates are at an all time low. How does a buyer balance the two in terms of decision making towards purchasing a home?" Erin, [00:06:30] what do you think? Is it worth waiting?
Erin Lichy: That's such a loaded question. I really think it depends. I would say that, of course, it's incredible that interest rates are so low, and it definitely, if it makes sense for the potential buyer, you should bite the bullet. But I will say that it really depends on what you're purchasing for, and what the reason is behind it. If this is a quick investment and the market is still high and it's not a fixer- [00:07:00] upper and you're just buying it with the hopes that in a year or two you'll be able to sell it for more, then I'd say hold off, because you're still paying a much higher amount if the market's really hot.
That being said, if you're buying something for longterm, you want to get into a 30-year fixed mortgage rate, and you know you're going to be there for at least 10 years, I'd say go for it. I think it's a great time. Especially if it's a neighborhood in an area [00:07:30] that is proven to increase in value and has been a successful area, then I would say go for it.
On the other hand, if you're purchasing something for an investment and it is in an area that maybe prices are still a little bit high and there are low interest rates, I'd say, why don't you spend some time maybe looking for something where you can add some value? Sometimes, even though it's not a total dump, people don't realize that they can add value to a property, and it might be priced lower than [00:08:00] what it should be just based on decor alone.
It's really important to consider renting versus buying in terms of your budget. Sometimes it doesn't really make sense to buy versus rent, even if you do have money for the down payment, because if the value of the property does lower, then not only will you potentially just be recouping whatever you put into the property, but you may be even losing money. So it really depends. I would say do a little bit more research and figure out exactly what [00:08:30] your intentions are when you're purchasing. But I'm a risk taker, so I say take advantage of those interest rates.
Melissa Bell: And that's great, because I have to admit, I'm not fully objective here. I am looking to start a family with my partner and we want to sell our house right now, so this question is a very personal one. Michelle, what advice do you have? Do you think it's worth waiting, or can you give me some good news and tell me that people should buy right now?
Michelle Meyer: Sure, yeah. So the housing market now [00:09:00] in the last month or two has seen a pretty meaningful turn higher. So you can look at mortgage purchase applications, for example, as a good proxy of housing demand. When the COVID pandemic first hit in mid-March, mortgage purchase applications fell sharply, a big drop lower, but by the middle of April, applications were rebounding, and we're now at a level above where we were in February, above the level that we were trending at prior to COVID. So there's been an incredible rebound of housing activity.
The [00:09:30] level of interest rates is incredible, so the cost of borrowing right now is very, very low. The 30-year fixed-rate mortgage rate from Freddie Mac, so it's what you would get if you're in kind of a conforming mortgage or a government-backed mortgage, reached a record low. That obviously should be an important input into the decision, which is that the affordability is really attractive now.
That said, I do think affordability will remain attractive. So I think we're going to be in a period of low interest [00:10:00] rates now for the next several years, given the nature of the economy and given what the Federal Reserve has done in terms of their actions to ensure that interest rates will remain low, in order to stimulate a healthier economy and really, in a way, boost the housing market, which is very heavily interest rate sensitive.
So yes, interest rates are low right now. That has helped affordability, and that has clearly helped to spur people's move back into the housing market if you look [00:10:30] at the recent data on home sales. But I do think that people have some time. They don't have to rush. They can look for the right property. They can look for a property they feel like works for them financially, works for them personally, because I do think interest rates will remain pretty low for the next several years.
Melissa Bell: Our next question is a video question submitted by Jennifer and Oliver from La Jolla, California.
Oliver: Hi, I'm Oliver.
Jennifer: And I'm Jennifer. We recently married and purchased our first home in November of 2019. [00:11:00] Because mortgage rates have dropped so significantly since the pandemic started, we're wondering if we're good candidates to take advantage of refinancing. Are there any prerequisites that we should be aware of?
Oliver: And what do we need to consider in order to decide if refinancing is right for us?
Erin Lichy: As a real estate agent, I cannot tell you how important mortgage bankers are for me, and I really feel like they're a partner, especially when I'm trying to help somebody navigate their finances and decide whether or not [00:11:30] they can afford something or whether or not they'll be able to refi down the line. And then even if a client calls me in the middle of their purchase and they say, "Hey, what should I do? Should I sell? Should I refi?", this and that, it's so helpful to discuss this all with a partner that really knows. So that, I just wanted to touch upon.
On the other hand, I would like to say that, for me, as a rule of thumb, I always tell my clients that as long as you can recoup your closing costs between two [00:12:00] to three years after you refinance, I think that's something that is a very important consideration, because people don't realize that everybody says like, "let's lower our monthlies," but people forget that there are very high closing costs often associated to a refinance, so it's something definitely to think about.
Melissa Bell: Thank you so much, Erin. I think that's some great advice. That's it for our segment on rethinking home options. I want to thank both our guests, Michelle and Erin, for joining us today, and thanks to you, our audience here at Money Talks: Home Habits, powered by Bank of America.
[00:12:30] Thank you again to everyone for watching Money Talks: Home Habits, powered by Bank of America. We hope this event was able to provide some guidance and help you prepare for a better financial future.
39% of urban residents reported the coronavirus led them to consider relocating to a less densely populated area.3