While the US saving rate soared to record heights during the pandemic, not everyone was able to squirrel away extra cash for a rainy day. Nineteen percent of US households had to cash in all their savings during the COVID-19 outbreak. These numbers jumped to 30% for those households earning less than $50,000.
That’s according to a joint poll carried out by NPR, the Robert Wood Johnson Foundation, and the Harvard T.H. Chan School of Public Health, which surveyed 3,616 US adults in August of this year.
The poll also found that nearly 60% of households below $50,000 report facing serious financial problems in 2021, despite financial assistance from the government.
The Reality of Life without Savings
Without savings, running your financial house is a challenge. You’re vulnerable to any unexpected expense that doesn’t fit neatly into your budget — whether that’s taking your child to an after-hours clinic or bringing your car in for repairs after you blow a tire.
When disaster strikes, most Americans reach for the plastic in their wallet. More than 50 million people added to their credit card balances during the pandemic to cover unexpected and essential purchases alike.
For those with maxed-out credit cards, an online installment loan acts as another possible safety net. These small dollar loans are a convenient option if your credit score took a beating during the pandemic. You can apply for financial assistance online through installment loans for bad credit if you need help with an unanticipated auto repair or medical bill.
How to Rebuild Your Savings
Installment loans for bad credit, lines of credit, and credit cards are designed to be financial backups in emergencies. But your savings should always be the first line of defence against unexpected expenses and large purchases.
After a year of lockdown measures and restrictions, now’s the time to rebuild your savings so that you can stop relying on installment loans or credit.
The biggest question of the hour is how. Starting from scratch isn’t easy, but financial recovery is possible.
1. Track Your Spending
You’ll want to create a budget to understand your cash flow. This document gives you insights into your spending habits. But more importantly, it helps you establish your priorities. It’s a spending plan that helps you visualize how you can sock away more cash into savings.
2. Cut Discretionary Spending
Your budget should be lean until you set aside at least $1,000 in your savings account. This means you should cut out all discretionary spending, paying only the essentials, like housing costs, utilities, groceries, and the minimum payments on installment loans and lines of credit.
By eliminating all other expenses, you can free up cash to put into savings. To maximize these contributions, make sure you put them in a high-yield savings account.
3. Negotiate the Necessities
This next step is especially helpful if you don’t have a lot of discretionary expenses to cut from your budget. However, everyone will benefit from negotiating the price on essential bills.
Although you may not be able to eliminate car insurance or a cell phone bill from your budget, you can shop around, tweak your policy, and speak with these providers to negotiate the price.
Before reaching out to any of your creditors, make sure you understand your policy or account inside and out. You should also research other companies to see if you can find a better price on the same service. Use this knowledge to leverage your case for lowering your costs.
4. Increase Your Income
NPR’s recent poll reveals your income plays an important role in your relationship with savings. The more money you earn, the more you can put away, so you’ll want to look into how you can increase your income.
If your industry weathered the pandemic well, consider asking for a raise. Point to all the hard work you put in during the outbreak to convince your employer you’re worth it. Come prepared to make sure you get what you ask for.
Don’t panic if your company is still recovering from the pandemic. This is a sign you should increase your skillset so that you’re eligible for a higher-paying position. You can even pivot these new skills into a new career or side gig.
It’s hard to see your savings balance at zero. So shift your perspective. Emptying out your savings is a sign that your emergency fund successfully insulated you from financial emergencies.
Now it’s time to rebuild them so that you’re prepared for the next issue. If you had to wipe out your emergency fund during the outbreak, focus on rebuilding it as quickly as possible. Following these tips can help you be ready for the next bump in the road.
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