You may have heard that we’re in a recession. The National Bureau of Economic Research, a nonprofit economic organization that tracks recessions and formally decides when they begin and end, recently stated that the US economy started slowing down in February, ending a record stretch of expansion.
Given the impacts of the pandemic – growing unemployment, closed businesses – this announcement may not be surprising, but that doesn’t mean it’s any less stressful. News of any economic downtown can spur concern about how a slump could impact our money and financial goals.
While it’s hard to know exactly what the fiscal dip will look like and how long it might last, taking a few steps to fortify your savings strategy can help you weather a recession. Here’s what you can do to feel more secure in your financial footing.
Keeping tabs on your spending is always important, but may be especially crucial during a recession. During economic downturns, unemployment tends to be higher and the market can experience some swings, so it’s a good idea to protect the money you have coming in now, in case your financial situation is impacted by these events.
Maybe you’ve already scaled back on spending as a result of shutdowns and social distancing over the last few months. Or perhaps you went a little overboard on retail therapy to keep your sanity (hey, no judgment). Either way, now can be a great time to for all of us to revisit where our money is going and tighten that budget belt if necessary.
Identify which expenses are non-negotiable and which ones could be eliminated or cut back on. You may even be able to negotiate the cost of certain subscriptions and services, like cell phone plans or fitness memberships.
When it comes to emergency funds, aim to have at least three to six months’ worth of living expenses set aside. In times of economic uncertainty, it may be worth putting even more aside if you’re in a position to do so.
Charting your expenses is admittedly not the most exciting task, and thankfully there are many online tools available that can automate tracking your spending, set goals for certain categories (like restaurants or travel) and even alert you when you’ve gone over. Some can also help you build, manage and track a budget.
One way you could earn more on your savings without having to change your spending (consider it low-hanging fruit) is by moving your cash into a high-yield savings account. Many FDIC-insured online banks offer higher APYs than traditional savings accounts, typically because they have less overhead costs than traditional brick-and-mortar locations.
High-yield savings accounts can be a great place to store money for both short-term goals and your emergency fund because you can easily withdraw from them when needed.
Another savings tool that could get you more bang for your buck is a certificate of deposit. These accounts typically pay higher rates than traditional savings accounts, with some offering fixed rates for a specific time frame, usually from six months to several years.
That means that even if rates on savings accounts drop, the rate on your CD (depending on the terms of your CD) will likely be locked in.
In the last few months, the stock market has had its fair share of ups and downs, and many of us have watched our retirement accounts yo-yo in response. Whenever these balances take a sudden dip, you may wonder if your portfolio will ever bounce back from the losses suffered during volatile periods.
Something to keep in mind: it’s normal for markets to fluctuate and in the past, they’ve recovered from slumps.
Even in the last few months we’ve seen the markets swing back up. It can certainly feel like a rollercoaster ride, but provided you’re able to do so, there are good reasons to keep contributing to your retirement savings, which we cover in this article here.
Particularly if you’re still a long way from retirement, time is your friend. The longer you’re able to stay invested, the more time your portfolio will have to ride the waves of the market.
If you received a tax refund this year or will be getting one soon, consider putting some or all of it toward your savings. Depending on your goals, you could stash it in a high-yield savings account to give your emergency fund a boost, open a CD to sock away money for a long-term goal where it can typically rack up even more interest, or show your retirement accounts some love.
During recessions, interest rates on savings accounts tend to go down, but the flip side is that banks may be more willing to may adjust the APR on their credit cards. While lower interest rates may not be welcome news for the cash you’ve socked away, it may be an opportunity to pay off any expensive credit card debt sooner.
If you find yourself in a position where you need to charge things to your credit card more than usual, and you’re carrying a balance, you may be able to save money with these strategies.
Many balance transfer credit cards offer an introductory period of 0%, typically for six to 18 months, as a way to incentivize new customers. Because you won’t pay interest on any balance transfers or debt accrued during this time, you’ll save money if you need to carry a balance temporarily or want to pay off any current debt without constantly tacking on interest payments.
The key to this strategy is to pay off as much of your transferred debt on the new card as possible before the end of its intro period. After the promotional time, the card’s regular APR will kick in, and any remaining debt will go back to being charged at a higher APR.
It’s a good idea to check the terms and conditions of various offers, too. For example, some cards may charge a transfer fee, which can range from 3% to 5% of the amount you’re transferring. Do the math to make sure the fee and interest savings are worth it.
And, most importantly, pay your bills on time – late payments can prompt some cards to cancel the 0% offer terms and could jeopardize your credit score.
If you’ve been consistent with paying your bills on time and your credit score is in good standing, your credit card company might agree to lower your interest rate. Many creditors might also be more understanding during tough times like recessions and job loss.
Call your bank to see if they can cut your interest rate down a few points. You can point to your payment history, strong credit score, and mention any cards similar to yours that have better rates. Any money you save in interest is more cash in your pocket – or savings account.
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