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How to Save Money if You’re Still Employed During COVID-19

As a result of layoffs and furloughs during the coronavirus pandemic, more than 45 million people in the U.S. had filed for unemployment benefits as of June 2020. Others have seen their salaries or work hours cut. Many have faced major financial struggles. Millions of other Americans, though, have been fortunate to keep their jobs and their income. If you're one of the fortunate ones, how prepared are you for the future?

If your income has remained stable during the pandemic, this might be a great time to review your finances and put cash in an emergency fund or save money for other goals. While your job and your income may be safe now, you want to be ready to face any surprises that might come along and to set yourself up for long-term financial success.

We'll walk you through some of the ways you can save money if your income hasn't been affected by the COVID-19 crisis—and why you should. These include:

  • Creating an emergency fund
  • Saving for retirement
  • Setting aside cash for a down payment on a home
  • Making a major purchase
  • Avoiding debt

Create an Emergency Fund

A 2019 survey by GOBankingRates found that 69% of Americans had less than $1,000 in a savings account. That leaves millions of Americans with potentially little cash in the event an emergency arises, such as an unexpected hospital stay or an unplanned home repair.

With the economy on shaky footing, now is a great time to start an emergency fund so you don't find yourself in a financial bind should an unplanned expense arise.

How much money should you have in an emergency fund? Generally, your emergency fund should contain enough money to cover three to six months' worth of expenses. If you can go beyond that recommendation, even better. But if you're only able to put aside one month's worth of expenses, you're still getting a jump on surprise expenses.

To start setting aside money in an emergency fund, consider taking the following actions:

  • Slightly decrease your debt payments while still making at least your minimum payments.
  • Save money during the pandemic that you might otherwise have spent on things like movie tickets and restaurant meals.
  • Seek ways to cut costs, like getting rid of an unused gym membership.
  • Hunt for a side gig to generate more income. This could include becoming an Amazon delivery driver, a dog walker or an online tutor.

You might also apply those moves to other areas of your finances, such as saving for retirement.

So, how do you get started with an emergency fund? Here are four tips:

  1. Develop a household budget. This should take into account all of your sources of income and all of your household expenses.
  2. Set a monthly savings goal. Look at how much money you can put in your emergency fund once you've covered your monthly expenses.
  3. Park your money. The last place you should stash your emergency funds is under your mattress. Instead, consider opening a high-yield savings account, a money market account or a certificate of deposit (CD) account.
  4. Don't touch it. To resist the urge to dip into your emergency fund to buy a new TV, keep the money in an account at a bank or credit union that's not tied to your primary checking or savings account.
  5. Set it and forget it. Automatically transfer a portion of each paycheck to your emergency fund.

Save for Retirement

Saving for a rainy day is one thing. Saving for the golden years of retirement is quite another.

In 2019, the typical American household reported about $50,000 in retirement savings, according to the Transamerican Center for Retirement Studies. Yet the amount you'll need in retirement goes well beyond that. Estimates vary widely, but in a 2019 survey for investment giant Charles Schwab, $1.7 million was the average amount that 401(k) participants thought they'd need in retirement. Of course, everyone's situation is unique, so your retirement target might be higher or lower than that.

Regardless of the formula for calculating retirement savings, it's important to build your nest egg. Investing experts suggest earmarking at least 15% of your gross income for retirement.

Here are seven steps you can take to put yourself on track toward achieving your retirement goals:

  1. Start saving for retirement as early as you can. This gives you a better shot at your nest egg growing over time.
  2. Whittle down your mortgage debt. Owning your home outright can free up hundreds or thousands of dollars for retirement. In 2019, the average mortgage debt in the U.S. was $203,296, Experian data shows.
  3. Pay off student loan debt. Being saddled with student loan debt can hinder your ability to put away money for retirement. The average student loan debt for Americans stood at $35,620 in 2019, according to Experian data.
  4. Wipe out credit card debt. The average individual U.S. credit card debt climbed to $6,194 in 2019, Experian data shows. If you don't pay your credit card bills in full each month, the interest charges can add up. Paying off credit cards can be challenging, but using the debt avalanche or debt snowball payoff method can help you do it sooner rather than later.
  5. Refinance your mortgage. Refinancing your mortgage at a lower interest rate could yield thousands of dollars in savings over the life of the loan. Keep in mind, though, that it could take years to recover the upfront costs of refinancing.
  6. Start participating in your employer's 401(k). This type of retirement plan enables you to invest part of your paycheck before taxes are taken out. It's estimated that only about half of U.S. workers contribute money to their employer-sponsored 401(k). Some employers offer fund matching to encourage employees to invest in their retirement. If yours does, you could be leaving free money on the table if you're not participating.
  7. Open an IRA. An IRA, or individual retirement account, lets you save for retirement on a tax-free or tax-deferred basis. But in a May 2020 survey commissioned by Bankrate, more than one-fourth of working households in the U.S. reported they weren't contributing to retirement accounts, including IRAs, before the pandemic. Before the next crisis hits, and if your employer doesn't offer a 401(k), it might be wise to start an IRA—as long as you've got enough available cash—so that you're better prepared for retirement.

Set Aside Cash for a Down Payment on a Home

For many Americans, owning a home is a dream. Realizing that dream doesn't come cheap, though. For instance, the median down payment for a U.S. home was 12% in 2019, according to the National Association of Realtors. A down payment is an upfront payment that's calculated as a percentage of the purchase price—usually 5% to 20%, with 20% or more being ideal for the best rates and terms.

Even if you can afford the monthly payments on a mortgage loan, it can be tough to come up with a down payment. Here are four ways you can save cash for a down payment on a home:

  1. Set aside a certain amount of money every month into a savings account solely for a house down payment.
  2. Take a side gig to make extra income.
  3. Put off vacations until you've got enough money set aside for a down payment.
  4. Trim your high-interest credit card debt.

Don't Let Major Purchases Deplete Your Savings

Have you got your eye on new furniture for your bedroom? Are you in the market for a new car? Big purchases can put a dent in your budget. However, you can cushion your budget by saving up money for that new furniture or new car. Here are four suggestions for how to do it:

  1. Open a savings account designed just for the big purchase.
  2. Set up automatic transfers from your checking account to your savings account.
  3. Think small. Can't afford to put away $500 a month? Then go with $50. It might take longer to save up, but at least you'll be closer to your goal.
  4. Collect loose change. Put all of your pocket change in a piggy bank or jar at home, and designate it for your big purchase. All of those coins might add up faster than you think.

Avoid Credit Card Debt

Not running up any credit card debt, or at least reducing it, can put more money in your pocket.

Investment giant Fidelity offers the following example of why it pays to stay away from piling up high-interest debt: You buy a $2,000 flat-screen TV on a credit card with a 15% interest rate. If you make only the minimum monthly payment, it would take you more than 17 years to erase the original debt. During that time, the credit card issuer would collect over $2,500 in interest—more than you paid for the TV in the first place.

As this example illustrates, it's best to pay off your credit card balances in full each month to avoid interest charges and save more money. Consider these six other steps to avoid or reduce credit card debt:

  1. Use credit cards only for purchases you know you can afford to pay off each month.
  2. Negotiate with credit card companies to lower your interest rates.
  3. Explore an introductory 0% balance transfer offer on a credit card as a way to consolidate your debt. Only do this if you know you can pay off the transferred balance before the intro period ends and won't run up the paid-off cards' balances again.
  4. Look into a debt consolidation loan, which can allow you to pay off your credit card debt at a lower interest rate and with a single monthly payment.
  5. Consider contacting a nonprofit credit counseling agency if you're overwhelmed by credit card debt.

Putting It All Together

No matter what your goals are, saving money if you're still on solid financial footing during the coronavirus pandemic can put you in a better position to cope with the next crisis. As part of the process, review your credit report to see where you stand in terms of debt. And know you can step up your savings game and brace yourself financially for whatever comes your way.

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