Facts to Help Your Non-Financially Savvy Friends Turn a New Leaf

A guy named Leif sends a guest post to a guy whose name is also Leif (but sometimes goes by Milo) about how to turn a new leaf. There’s a joke in there somewhere, but we’re past April Fool’s Day now, so we’ll let it be.

This past year has been exhausting, challenging, and heartbreaking for all kinds of reasons, but most of these struggles can be traced directly or indirectly to the COVID-19 pandemic.

Just as the virus takes one life while causing nary a sniffle in another body, the financial impact of the pandemic has manifested itself over a broad spectrum from making some destitute to lining the pockets of others.

If you or your friends got the short end of the stick, Leif Kristjansen, the co-founder of Five Year FIRE Escape, has some advice to share.

 

Leif Kristjansen is the co-founder of FiveYearFIREescape.com (Twitter: @5yearFIREescape) where he and his wife write about finances and early retirement for busy people. They have a funny take on retirement that involves working…but differently! They have kids and a house in a high cost of living city but managed to succeed via saving skills and rental properties.

 

 

If you’re like me, COVID-19 has been a big wakeup call for the importance of being financially insulated. We saw entire industries frozen, shut down and changed forever which would have been a horrible experience for anyone living paycheck to paycheck.

Now, I know likely no one reading on PhysicianOnFire is in that situation but boy, I bet you have some non-financially savvy friends like I do.

Maybe it’s not the nicest thing but whacking some of my friends over the head with covid facts, especially while they are feeling the pain has turned some people into converts, and I think future FIRE pursuers.

So today I will lay down some fact bombs for you to hit your nonfinancial friends with. Some are painful, some aren’t the nicest, but if you can help a friend in the long-term, it’s worth it. 🙂

 

Overall, the stratification of the financially privileged and unprivileged became clear as day.

• People who entered the COVID era with their finances in shape are thriving.
• People who spent the years leading up to COVID developing their skills and investments are using their “insulation” to continue with good pay rates that can be saved and invested.
• People without insulation were caught with no savings.
• The economic ripples unevenly “dragged down” those with finite skills combined with no savings.

 

 

The Facts About Jobs and Getting into Good Industries

 

People in tech and healthcare are generally thriving, financially. This means anyone in any way related to online work or caring for the sickly. Then, because they always seem to come out on top, finance people like investment bankers and those related to personal investing are also thriving with help from low interest rates and the wealthy tech/healthcare workers.

The five biggest tech companies just earned $28.6 billion in quarterly profits. This is where today’s privileged, insulated people work.

On the other hand, wealth spikes in these industries happened while more than 30 million people were unemployed in July of 2020. The American economy as a whole shrank by 32.9 percent. That’s an incredible number.

Personally speaking, the workload for my part-time post-retirement tech work is expanding. We’re scrambling to hire more full-time positions as I write this!

What’s the lesson to share with friends who need some financial encouragement?

Always improving your work life by positioning yourself with flexible, adaptable skills allows you to enjoy the fruits of your labor when big fluxes occur and avoid the pain felt by dated professions.

 

Those who felt the brunt of the pandemic

Let’s take a peek at just how painful it is on the other side of the insulated bubble.

Low-income jobs have been devastated and decimated six ways from Sunday. The Federal Reserve reported that 55% of adults with family incomes below $40,000 were doing just “okay” financially.

That sounds like good news until you hear that 95% of adults making $100,000 or more were doing “okay.”

The real catch is that the COVID-19 recession isn’t just a “hump” for low-wage, low-skilled people to get over.

The privileged, insulated crowd is finding workarounds by using new tech and automation to replace the jobs that are missing right now. That means that a lot of the jobs that “temporarily” got wiped out when people started staying home are never coming back.

 

My personal experience with job chopping

I can speak to this on a personal level. I was (and still am) in management in my tech company. We are having issues with some low-skilled jobs being remote. So you know what my boss, and my boss’s boss are VERY motivated to do. Automate the heck out of them! Purchased software is designed to not take up a desk in an office and is totally unaffected by remote work.

I know some people who are “just waiting” for COVID to end so they can find a job, but I’ve certainly been encouraging them to skill themselves up since there is likely no job waiting for them.

 

How job losses worked last time

 

Privileged versus unprivileged wasn’t invented with COVID. However, the divide became more polarized. Let’s do the math:

 

• 40% of pre-COVID Americans didn’t have $400 in the bank to cover emergency expenses.
• Everything is going mobile. You can now buy food, pick out clothes, complete a degree and get in shape with a virtual trainer online!
• One skilled programmer can systematize thousands of orders and transactions that used to require an entire retail store, gym, or administrative building.
• A single security analyst can safeguard millions of transactions from hacks.
• It means a huge reduction in sales reps, cashiers, security guards, stockers and janitors.
• Two well-paid, highly skilled workers just claimed salaries that used to be spread among hundreds of people! And these days they are being encouraged to “go nuts.”

 

Your friends without insulation are vulnerable. They’re only becoming more vulnerable as time goes on.

30% percent of people who “temporarily” lost their jobs during the last recession never got them back.

According to the Aspen Institute, employers have a history of becoming leaner when recessions strike.

 

“Labor’s share of national income—that is, the amount of GDP paid out in wages, salaries, and benefits—has been declining since the 1980s in a number of countries, and notably the United States,” according to the McKinsey Global Institute.

 

My Skill Up Plan for my Pals!

So what do I tell people? Cancel Netflix/Cable (it’s too amazing to have in your house!), stop watching the news and put the savings toward skill-building courses (courses are incredibly cheap for what you get) and start becoming more marketable! I know I’m somewhat impressed when I interview people who take courses after being laid off.

 

Don’t Rest on Your Laurels

People who are still employed right now should be asking what skills they need to become more indispensable. You don’t know the industry that will be affected next, but if their skills are top notch. They’ll likely be fine either way.

 

Investing Is Faster Than Becoming a Programmer

 

The real kick in the teeth though is that if you had a good job coming into the recession, you are likely coming out with even more money. The past six months offered some of the best opportunities for investors in the past 10+ years.

I know I invested in a lot of real estate and rental properties over my years and I quite frankly feel like I’m cheating the financial system right now.

My variable-rate mortgage payments keep shrinking and real estate has skyrocketed as people have rushed to “stay home” in comfortable places without commuting restrictions.

I saw one of my investment properties rise by $100,000 in value in 2020! My rents are all still plenty high this year even though I’ve given COVID discounts to some renters to ensure they don’t move elsewhere.

I was able to do that because I had a money buffer to give myself some guarantees. With them, my investments have risen. Too much, if anything.

 

The lesson?

So great, investing was great. That’s not big news, I know!

But if you ask your friends who aren’t doing so great what they would have done with a liquid $100K laying around, I’m sure they’d have great ideas.

Now, lay out the fact that a new collapse will come. I don’t know when, but it will come. They will hopefully be very motivated to get themselves in a spot where they can become opportunistic despots too.

What do they need? Enough money to feel comfortable when things turn south, aka, an emergency fund, then some liquidity on top

 

My Formula for Convincing my Friends

 

I want to leave you with an actionable formula that you can share with the non-financial friends you want to wake up. It’s about becoming insulated from all sides:

 

• Step 1: Hit them while they are down with these facts. It’s tough love!
• Step 2: Get them motivated by something financial.
• Step 3: Get them to skill-up whether they are laid off or working (optional if they have lots of investment money).
• Step 4: Convince them to build up an emergency fund so they can be opportunistic next time.
• Step 5: Get them investing so that all that working and skills talk can become irrelevant.

 

I’m sharing all of this because I know you have people in your life who think it’s all going to “go back to normal” once COVID is over.

My take is that people who are planning ahead shouldn’t plan on waiting for “normal”. With a little pain, mentoring and motivation friends who were doing just “okay” in pre-COVID times can THRIVE in post-COVID times once they figure out the formula that the privileged and insulated have been using the whole time!