Guest Post By Kevin Gibbons
“Who can think about saving money during a pandemic?”
The news and personal stories from our friends are full of the challenges people are facing as the pandemic enters its 6th month (or 9th month, depending on how you are counting). We see and hear about people who have lost their job or seen their hours and income cut. In these circumstances, thinking about maintaining or even increasing your savings rate may seem unachievable.
But, that may not actually be the case.
The Investment Company Institute reports that “only 1.4% of plan participants stopped contributing to their plans” in the first quarter of 2020.
A recent Bankrate survey reports that many people are actually increasing their savings rates. Importantly, the survey shows this happening across a wide variety of incomes, from less than $30,000 to over $80,000 annual income ranges. Depending on their income ranges, 13 – 27% of survey respondents report increasing their emergency savings in the March-May timeframe. While that means 73 – 87% did not increase their savings, that is still a sizable portion of the population who did.
So what can you learn from those savers to use in your situation?
· Many of our normal areas of discretionary spending, such as dining out, travel, and other entertainment are still significantly restricted. Capturing that money that you once spent on these activities is key to saving.
o Make this an intentional purposeful practice. If you used to spend $100/week on eating and drinking out, then physically take that $100 each week and put it into your dedicated savings account.
o Make sure this savings account has a purpose. You are not saving money for the sake of saving money. You are saving it for a purpose with a specific dollar goal such as an emergency fund, an entertainment fund for when life returns to “normal,” long-term wealth building, or some other specific purpose.
· Do your best to resist buying out of boredom or for stress relief. If you are feeling an urge to buy, stop and ask yourself what need you are truly trying to fill. Don’t refrain from making any purchases. Just stop and consider if each purchase really is addressing a need or if that money can be better used for future plans.
· Practice a “zero-sum” Spending Plan. That means giving every dollar a purpose. If you have money left over at the end of the week, sweep it into one of these savings plans. Don’t let it sit idly in your checking account where it can evaporate.
· If you are already saving, do everything you can to keep saving. Stopping and restarting is usually much harder.
“Who can think about saving money during a pandemic?” We all can. Many of us are living a different lifestyle now than what we have been used to. If this lifestyle uses less discretionary spending, capture that balance in savings. Carrying these savings habits forward will hold you in good stead in the future and keep you on the path to saving for your goals, both short- and long-term.
Kevin Gibbons is a Cash Flow Planning Expert, the Vice President of The Savvy Life and co-author of the international bestseller Living The Savvy Life. For the past eight years, Kevin and Savvy Life Founder Melissa Tosetti have worked with over 625 individuals and families to create Spending Plans.
To learn about how Kevin and Melissa work with clients to create Spending Plans, visit The Savvy Life’s Home Page. If you’d like to learn about how they work with financial advisors and their clients visit: The Savvy Life Advisor’s Page.The Savvy Lifeliving a savvy lifesavingsaving moneyemergency savingspandemicCOVID 19purposeful savingSpending PlanBankrateInvestment Company InstituteICI