Introduction
Changing your savings objectives, reducing spending, paying off loans, and staying out of more debt are all possible ways to increase your savings during a recession. Even in non-recessionary times, developing the practice of saving money requires discipline and can be difficult.
We consulted several experts to get their best advice on how to save during a downturn in the economy. They also shared several dangers you should be wary of.
Lets look at the dos of saving money during recession
- Replan your savings goals
Saving money may seem like an insurmountable effort during a recession, especially if you or a member of your family is unemployed, but you should attempt to keep the practice, even if you just have a modest amount saved each month.
Generally speaking, financial experts advise that you save aside money equal to three to six months’ worth of living expenses. Even if you can only afford to save a small sum each month, it’s still beneficial to develop a consistent saving routine.
Financial advisor and lead portfolio manager at UBS Financial Services in Boston, Larry DePaulis, advises having your money directly put into a different account. “In this manner, the amount that appears in your bank account each time you get paid reflects the actual amount that is accessible for spending. This makes it simpler to determine when you need to reduce your discretionary spending.
Consider increasing your savings contributions if you have a consistent income, and set the aim of funding your emergency fund entirely.
- Hold onto your cash
Make sure your emergency fund is accessible when choosing where to keep it in case you need to use it for unanticipated costs like a pricey medical bill or car repair.
You may easily access the money in a high-yield savings account while simultaneously generating interest. However, when it comes to creating an emergency fund, generating interest shouldn’t be your main goal.
The safety and liquidity of the money should be your top priority, according to Scott Schleicher, senior financial advisor at Personal Capital.
Keeping a different account for additional savings can be a wise decision in addition to having a liquid emergency fund account.
According to Annette Hammortree, CLTC, RICP, owner of Hammortree Financial in Crystal Lake, Illinois, “keeping this money in the same spot makes it too simple to tap into it for non-emergency purposes.”
It pays to browse around because some high-yield savings accounts provide rates that are more than 15 times higher than the US average.
- Try to bargain or reduce costs whenever you can
Even if the recession hasn’t had a significant impact on your money, it’s still a good idea to review your spending and seek for ways to reduce it or negotiate payments.
According to Greg McBride, CFA, chief financial analyst at Bankrate, “the most direct approach to increased savings frequently entails cutting back or eliminating specific spending.” “Re-evaluate your demands and lifestyle to find areas where spending might be cut.”
This entails making an inventory of all of your ongoing costs and separating them into mandatory and optional expenditures.
You might possibly negotiate lower monthly payments for bills in addition to cutting expenses. Bills for cable and cell phones, for instance, are frequently adjustable.
- Stay inspired
In our study conducted in June 2022, more than half (58%) of individuals said they were worried about the money they had set up for emergencies. Additionally, surveys show that Americans’ confidence in the economy is at an all-time low right now.
Money is a major source of stress for many consumers, and it can be challenging to find consistent strategies to save money as well as to maintain motivation.
According to experts, some effective strategies for improving your financial motivation include:
Having objectives
Draw inspiration from others’ achievements and use what you’ve learned from them to avoid repeating them in the future.
Accept any mistakes you may make along the road.
Lets look at the donts of saving money during recession
- Dont increase debt owing to expensive, needless purchases
One significant trap you should attempt to avoid when it comes to your money and making it through a recession is piling up additional debt as a result of big, unneeded expenditures.
Economic turbulence is a time to increase savings and decrease debt, not the other way around. explains McBride of Bankrate.
Shopping over the holidays, when it can be tempting to use buy now, pay later services or put gifts on a credit card, is one of the ways Americans frequently accumulate debt. If these purchases are not made on time, they could result in significant interest costs. You can stay away from such financial hazards by doing some forward preparation, such as saving aside money each month throughout the year.
- Dont Accumulate high-interest debt
In times of recession, especially if inflation is high, consumers may need to take on some debt in order to purchase the necessities. Even if it’s not ideal, there are some things you may do to lessen the blow.
The first step is to make every effort to avoid taking on any high-interest debt, which is frequently related to credit cards. Looking into credit cards that provide initial zero percent promotional interest periods or transferring balances to such cards are two ways to prevent this.
These 0% rates won’t last forever, but they can prevent you from accruing interest on necessary purchases as you try to get back on your feet.
- Don’t: Be discouraged by low savings rates
Savings account yields at the majority of online banks and credit unions have been increasing in response to the Federal Reserve’s interest rate increases this year, while rates at many brick-and-mortar banks continue to be at historic lows.
An annual percentage yield (APY) on a savings account, for instance, is often under 0.01 percent at brick-and-mortar banks, but many other online banks today offer APYs of 2 percent or greater.
Even while earning interest isn’t the primary goal of emergency savings, maximizing the yield on an account set up for emergencies or other savings objectives still makes sense.
- Don’t: Lose sight of long-term financial goals
When it comes to saving money, it’s crucial to take both your immediate and long-term financial objectives into account. Even if your current priorities may be more on surviving, try to keep your future self in mind.
According to Bankrate’s McBride, “the path to financial security is to be saving for both emergencies and retirement, not just one at the detriment of the other.”
The CEO and founder of Cornerstone Wealth Advisory in New York City, Michele Lee Fine, RICP, advises reviewing your retirement portfolio to make sure it is geared toward your risk tolerance and retirement age.
According to Fine, those who are furthest from retirement will have more time to weather market volatility and declining markets. “If you’re getting closer to retirement, make sure you’re progressively beginning to decrease risk and focusing more on developing sustainable passive income sources for the short term.”
Finding the appropriate retirement plan for your specific situation will help you maximize your return, regardless of when you begin saving for your golden years in your career.
Conclusion
Financial wellbeing is mostly dependent on saving money and reducing debt, particularly when prices are rising and the economy is struggling. When you set sensible plans in place and continue to be driven to expand your savings and pay off debt, staying on track is possible.