The COVID-19 pandemic is not just a global health crisis, but also a financial one, which means people have to be more vigilant about what to do with their money. This seems to be the case for a large portion of affluent citizens in Singapore who are saving more since the pandemic. The same goes for the U.S. population, where the personal saving rate reached 33% during the first months of the pandemic. It also includes small businesses that can easily apply for business loans because of their healthy financial statements.
Amid the economic havoc, it seems that the current situation has made people better at handling money. The shift in consumer behavior caused by COVID-19 has been a complete surprise. The quarantine season has curbed people’s spending, allowing them to put more money into their savings.
As finances remain stuck on lockdown, people turn into force savers, with their inability to splurge on restaurant dining, socializing, and holiday costs. It also gave way to ‘fear savers’ who are too restricting with their budget over concerns on the pandemic’s financial consequences.
Nevertheless, having more savings doesn’t equate to sitting on piles of cash. How you want to spend your personal savings depends on certain circumstances. If you’re one of the lucky ones who saved a great deal of money during the pandemic, here are ways to put those extra savings to work.
Put your money in a certificate of deposit
A certificate of deposit is a savings account offered by banks and credit unions that holds a fixed amount of money for a fixed period. In exchange, the issuing bank will pay the interest. The interest rate is often higher than what a regular savings account offers. So, when you redeem your CD, you obtain the money you previously invested with additional interest. But this will only apply if the rates are good enough.
Interest rates today are quite low, but other banks have rates that aren’t higher than the regular savings account. The most ideal CD rates are typically for longer periods, from five- to 10-year CDs. But if you plan to register for a CD, consider applying for a shorter term (at least two years).
Set aside six months of basic expenses
Having bigger savings in the bank serves as your safety net in case your business shuts down, you lose your job, or your company cuts down your work hours because of a recession. Although you may think that it’s unlikely to happen, it’s better to have extra savings in case something worse happens or you get laid off.
If your current savings have reached six months’ worth of daily living expenses, the first thing you should do is to put in a bank account. Losing a job would mean you’re qualified for unemployment benefits, but chances are, you won’t receive the money right away. We have heard of stories from people who have to wait for weeks to several months before receiving their benefits.
Having savings to support your living expenses during emergency situations can give feelings of empowerment. Thus, an emergency fund will support your basic needs until you get yourself out of that situation.
Put aside only six months of living expenses, nothing more and nothing less. When we talk about essential expenses, these are non-negotiable expenditures necessary for maintaining good health and basic daily living such as food, water, rent, electricity, and medication.
Work on your retirement contributions
Check on your employer-sponsored plans, individual retirement accounts, and retirement savings. If you haven’t contributed much to your workplace retirement plan, this is the best time to do it.
Be sure to contribute enough to maximize sponsored plans offered by your employee for the retirement contributions. This serves as free money which will eventually increase in the longer term. You may also consider setting up an individual retirement account (IRA) beside your employer-based plan. With an IRA, you can pay taxes with your money and enjoy tax-free benefits on your retirement income if you meet its requirements.
Once you have all retirement accounts ready, boost the amount of your contributions or max out your savings for an entire year. Once you reach the age of 50 or higher, you can add extra money to catch up on your contribution.
In these uncertain times, more people are struggling to make both ends meet, so if you’re in a better position to save more money, you’re ready to face any financial challenge head-on. While having extra savings can bring peace of mind, make sure to monitor your expenses and spend money wisely.
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