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September 1, 2020

What the Covid-19 Pandemic Can Teach You About Money and Happiness

By Shlomo Benartzi

We can use the current difficult situation to learn more about our financial preferences. This is an especially important exercise for freelancers, who generally have more flexibility and autonomy when it comes to making lifestyle decisions.

If you’re like most Americans, the Covid-19 pandemic has dramatically changed your daily routine. You’re no longer working at your favorite café, or stopping by the gym, or going to the movies.

 

Although nobody asked for these sudden lifestyle changes, they still represent an important learning opportunity. We can use the current difficult situation to learn more about our financial and lifestyle preferences. That, in turn, can help us make smarter saving and spending choices in the future, when the pandemic is over. 

 

This is especially important exercise for freelancers, who generally have more flexibility and autonomy when it comes to making lifestyle decisions.

 

Below are three key areas of life to study and learn from:

 

Should I work from home?

Many freelancers pay for a dedicated workspace.  However, due to the Covid-19 pandemic, they’ve been forced to work from home. How does this location change feel? Do you miss the social interactions of the shared office? Or are you happy working in the comfort of your pajamas? If you don’t mind working from home, you might want to consider cutting that workspace from your budget.

Can I spend less?

Many Americans dramatically cut back their spending during the pandemic, especially during the initial months of quarantine. By tracking your spending, and looking to see how it impacted your overall happiness and satisfaction, you can identify your optimal spending levels in the future. If you thought the spending drop severely impacted your wellbeing, then keep monitoring your feelings as life gradually returns to normal. Do you still feel the same way when you are spending only 5% less? On the other hand, if you didn’t mind the drop in spending, this suggests you can be saving a lot more without significantly impacting your happiness.

 

Am I spending money on the right things?

The pandemic provides a unique opportunity to discover which categories of spending make us happiest. Perhaps we were used to eating out several times a week before Covid-19. Do we miss restaurants? What about the gym? Which activity do we miss more? As a rule of thumb, eliminate spending on what you don’t miss. If you miss something just a little, try cutting your spending on that category in half. Invest in those activities that really make you happy.

 

Of course, these experiments aren’t perfect. For one thing, they fail to account for the impact of peer comparisons. It might less fun to eat at home when the pandemic is over, if our friends keep telling us about the great new trattoria that just opened. 

 

Nevertheless, we shouldn’t let the current crisis go to waste. We are living through a period of profound change and disruption, and it’s important that we learn whatever we can from it. 

 

If you’d like to learn more, you can read this column I wrote in The Wall Street Journal

 

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Shlomo BenartziShlomo Benartzi is a behavioral economist interested in combining the insights of psychology and economics to solve big societal problems. He received a Ph.D. from Cornell University’s Johnson Graduate School of Management and is currently a professor emeritus and co-founder of the Behavioral Decision-Making Group at UCLA Anderson School of Management. He is also a Distinguished Senior Fellow at the Wharton Behavior Change for Good Initiative. Along with Nobel Laureate Richard Thaler of the University of Chicago, he pioneered the Save More Tomorrow™ (SMarT) program, a behavioral prescription designed to nudge employees to increase their savings rates gradually over time that is now offered by more than half of the large retirement plans in the U.S. and a growing number of plans in Australia and the U.K. Benartzi is also currently a senior academic advisor for the VOYA Behavioral Finance Institute for Innovation, Acorns, Blast, Personal Capital and Wisdom Tree.


Disclosure: In addition to being an advisor to Lili,  I’m also a senior academic advisor to Acorns, a leading robo-saving app

Banking Designed for Freelancers

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