6 Do’s and Don’ts When Saving Money During a CrisisJuly 1, 2020
Probably the last thing you want to think about during a crisis is working on healthy financial habits like saving…
Probably the last thing you want to think about during a crisis is working on healthy financial habits like saving money. But if you’re able to save, you can make your eventual recovery easier.
“Every time you put some (money) away, you’re looking out for your future self,” says Saundra Davis, founder and executive director at Sage Financial Solutions, a San Francisco Bay Area-based nonprofit that offers financial coach training and services to people across the wealth spectrum.
Whether or not your financial situation has changed since the start of 2020, you may benefit from these saving strategies now or down the road.
DO: REDUCE COSTS, INCLUDING BILLS IF NEEDED
Common advice to save money is to cut unnecessary costs. During an ongoing crisis such as a pandemic, you might need to redefine what is “unnecessary.”
Start with the cost of bare essentials to operate your household — rent or mortgage, utilities, food — and when you factor bills in, don’t treat them all the same. For example, paying your credit card bill in full every month is normally the best tactic, but in hard times, it’s OK not to follow this rule and just pay the minimum. For loan payments, see if your creditor can offer relief.
“Don’t have your lender deciding what you can pay,” Davis says. “Sketch out your own budget.” This might mean working with your lender to reduce payments or suspend them temporarily.
DO: ADJUST YOUR SAVINGS GOALS
Having a dollar amount to save up to is generally helpful. An emergency fund, for example, is a standard goal that involves building up three to six months’ worth of living expenses. But during an emergency, consider resetting expectations.
“If your income changes, you aren’t beholden to saving a fixed amount,” says LaKhaun McKinley, certified financial planner and owner of the firm MNM Vested in Katy, Texas.
The way you save might need to be tweaked, too. If you use automatic transfers from checking to savings accounts, see if that amount is still doable for you. If not, reduce the amount. Or, as a last resort, cancel the transfers for the time being and make one-off transfers when possible.
When saving money, “the habit is more important than the amount,” Davis says.
DO: FIND A HIGH SAVINGS RATE
Opening a high-yield savings account at an online bank is a good strategy, regardless of the economic environment. The national average rate is 0.06%, but some online savings accounts are currently offering over 1% annual percentage yield. The account-opening process can take a few minutes.
Opening a high-yield account “can be such a simple way to earn more,” says Kelley Long. She’s a Chicago-based certified public accountant, financial planner and member of the American Institute of CPAs’ Consumer Financial Education Advocates.
DO: GET HELP FROM YOUR COMMUNITY…