Boost savings and help reduce your debt in the COVID-19 era
The COVID-19 pandemic is taking a massive emotional toll on everyone across the globe. And it cannot be overstated how deeply this virus has impacted the global economy and the financial markets. But what about the personal financial toll? Unemployment in the US is at record highs, putting added pressure on those out of work. And, as is typical in a recession, those who remain employed tend to have heightened anxiety about their own job security.
So, is there an upside to all this? We think so.
If you are a nonessential worker and are able to work from home, there may in fact be a few silver linings to consider. Reduced costs in certain areas of your personal budget may present an opportunity to get ahead. Here are a few smart ideas of what to do with that extra money:
1. Boost your savings
Many Americans who are able to work from home are finding that both ‘essential’ and discretionary parts of household budgets have dropped.
This is the perfect opportunity to take that extra cash and boost long-term savings. You can start by building up an emergency fund to guard against the unexpected. Most financial professionals advise putting away anywhere from three to six months of salary. This rule of thumb depends on a range of factors, including whether you work for an employer or for yourself, and other financial obligations. But given that 70 percent of Americans have less than $1000 in savings1, building up an emergency fund is a worthy goal. Consider setting aside half of your budget savings from reduced spending. Once you have built up an emergency fund, you can turn your attention to other savings goals.
2. Pay off your ‘bad debt’
The next best thing to saving is reducing high-interest credit card debt. For example, try paying down a credit card with 15 percent interest. It’s one of the first things you should do—especially before you invest money in anything else, even a 401k plan. If you have multiple credit cards, consider debt consolidation programs that put everything into one loan with a single payment and a lower interest rate. You can also look into unsecured loans that give you a (hopefully) lower interest rate and allow you to use the loan proceeds to pay down your credit cards. Each of those are term loans as opposed to revolving lines of credit, which helps your credit score.
3. Invest in your kids’ future
If you have kids, you may already have started saving for their college education. Despite the skyrocketing costs of college tuition, for many, it’s still a worthwhile investment2 with college graduates showing substantially higher income and wealth levels than those with only a high school diploma or only partially attending college. And because of those skyrocketing tuition costs, there’s no time like the present to start saving. There are a range of tax-advantaged 529 college savings programs in every state, with tax benefits for investing in your home state’s 529 plan.
4. Consider boosting 401k savings
One of the best things you can do is to ‘pay yourself first.’ And with a 401k or similar employer-sponsored retirement plan, many employers offer a matching contribution. So, at a minimum, contribute the amount you need to get the entire match as it’s ‘free money’! It will help get to your goals faster and it’s an easy/automatic way to save for your retirement—whatever that looks like!
5. Future proof the cost of aging parents
According to our research, about one-third of Gen Xers feel they’re more likely to have to care for an aging parent as a result of the coronavirus outbreak—a number that’s grown from 27 percent in late March to 34 percent in early April. As your parents age, you will face the prospect of having to care for them when they can no longer care for themselves.3 But looking after aging parents can be a full-time job in itself, and it’s helpful to think about what that will look like. You may want to look into long-term care insurance, as it will help you maintain peace of mind that your parents will get the care they deserve—and will reduce the stress of having to be a daily caregiver yourself.
While the return to life as we knew it before COVID-19 may be months away, in the meantime, these five strategies can help you recognize and capture the most of a silver lining while looking to the future.
1Huddleston, Cameron. “Survey: 69% of Americans Have Less Than $1000 in Savings.” GOBankingRates. Accessed June 15, 2020.
2Kerr, Emma. “College Worth the Cost?” U.S. News & World Report. Accessed June 15, 2020.
3Family Caregiver Alliance. “Caregiver Statistics: Demographics” caregiver.org. Accessed June 15, 2020.
This information is courtesy of New York Life Insurance Company, used with permission. It is intended exclusively for general information only. ©2021, New York Life Insurance Company. All rights reserved.