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How to Keep Saving Money During the COVID-19 Pandemic

During challenging times, it may seem difficult to develop or maintain a savings strategy – but taking the time to find the most effective solution allows for financial growth and future stability.

By David Kilby

Due to the coronavirus pandemic, 30% of Americans have withdrawn from their emergency fund prematurely. The percentage is significantly higher for millennials: 45% of millennials have tapped their emergency fund, compared to 32% of Gen X and 16% of boomers.

The harsh reality is the snowball effect this creates. People are having difficulty managing their current expenses, driving the need to access emergency funds just to get by. What does that do to savings?

The quickest way to create more accessible funds is to pause savings, whether that be a 401(k) contribution or eliminating the automatic transfer to an emergency fund. But unfortunately, this only exacerbates the problem. During challenging times, it may seem difficult to develop or maintain a savings strategy – but taking the time to find the most effective solution allows for financial growth and future stability.

Saving May Equate to Spending Less

The easiest way to save money is to spend less. Businesses and individuals alike are looking for ways to curtail spending, i.e., increase available funds. This could mean re-evaluating your budget and determining where you can cut back. Small amounts will add up over time. Online money management tools offer effective options to create and manage a budget. Once the budget is established, it is relatively simple to track expenses, identify spending trends based on current behaviors and make adjustments if the desired goal has not been reached.

Sometimes it’s difficult to assess your own finances objectively, but speaking with a financial coach or advisor can help you develop a budget, organize existing finances, and find ways to save more. A few small adjustments can add up to a nice monthly sum. Once you regain control of your finances and feel confident you can successfully handle necessary expenses, you’ll be able to invest the savings in an emergency fund or retirement account without making additional sacrifices.

Another way to save by spending less is to evaluate outstanding debt and determine which debt bears the highest interest/cost structure. By utilizing available funds to pay down the highest cost debt, you’ll save in a few ways. You get an immediate and known return on your investment equal to the amount of interest/fees you would have paid on that debt had you not paid it down. Paying down debt can also improve future credit/FICO scores which directly correlates with the cost of future debt. Ultimately, you will pay less for future credit if and when you need access to it.

Ready to save and invest?

The first step is to identify how much money you anticipate you will need when it comes time to retire. Be honest with yourself and be realistic about retirement spending. The worst thing you can do is to underestimate how much money you’ll need in retirement, so aim high. Once you retire and your income is gone, it will be too late to add to your fund.

Plan appropriately now and adjust your contributions to support your anticipated spending habits. Consider unpaid debts, cost of living increases and unforeseen health issues. Online budget calculators can help you determine how much you will need to save based on anticipated expenses.

Everyone should aggressively fund the ultimate insurance policy – their retirement fund. If your employer offers a matching contribution, take advantage of it! Maximize your contribution to the best of your ability to ensure you earn the match – it’s free money, and it is not often we get the opportunity to accept free money. This tax-deferred investment vehicle, depending on your tax bracket, can generate substantially greater returns than traditional investments in the after-tax market.

There are many ways to invest funds in your retirement account. If you take on more risk now, the rewards tend to be greater over time. However, the likelihood of losing money increases as well. It is important to gauge your risk tolerance. Ensure you understand the risk and are comfortable with the potential losses. The longer the timeline is between your current age and retirement age, you may opt for riskier investments in your portfolio since your investments will have time to withstand the volatility of the market.

If risky investments make you uneasy, build a portfolio that you feel comfortable with. You don’t want your retirement portfolio to cause additional financial stress, but you should take an active role in the management of your investments to ensure your portfolio allocations will enable you to meet your retirement goals. This is another great opportunity to lean on the professional guidance and recommendations of a financial coach or financial advisor.

These uncertain times we’re facing require a different type of attention to our finances. Most people are faced with new challenges that must be factored into their financial decisions, requiring a different type of knowledge and consideration. While short-term necessities have taken a higher priority during this time, establishing a long-term plan is a key element to ensuring the ability to maintain financial stability now and in the future.

About the author – David Kilby

David Kilby is a personal finance expert and president of FinFit, a fintech company that provides over 150,000 employers with a unique financial wellness benefit platform.