How to rebuild savings after a tough financial year
Tuesday, 6 April 2021
The pandemic has been the “rainy day" for which many of us had built emergency funds.
More than 40 percent of U.S. adults report that they or someone in their household has lost a job or wages due to the pandemic, and more than half of those say they've used savings they had set aside for emergencies or for something else to compensate, according to Pew Research. If your emergency fund or other savings have been depleted over the past year, it's time to start rebuilding.
The pandemic may not be completely in the rearview mirror, but as vaccination numbers increase and schools and workplaces continue to increase capacity, it's getting easier to see light at the end of the tunnel.
You can prepare for a future beyond COVID by starting now to get your savings back on track. Consider these three strategies to jump start your savings.
Save your windfall
Millions of Americans have received or will soon receive the third and largest federal stimulus payment of the pandemic. Those who are eligible will receive up to $1,400 per taxpayer and another $1,400 per dependent. If you expect to receive (or have already gotten) a stimulus payment, consider socking most or all of it away to rebuild your savings. Depending on the size of your household, this money could help replenish a significant chunk of your emergency fund or other savings account.
Even if you won't get a stimulus payment, you may be getting a tax refund this year. Because the amount of taxes you owe is based on the amount you earned during the previous year, people who lost income during the pandemic are likely to receive an even larger tax refund in 2021. A tax refund check could provide another boost to your savings.
Limit non-essential spending
When businesses were forced to shut down in response to the pandemic in early 2020, we all quickly learned how to live without going to restaurants, bars, theaters and other entertainment venues. While it's nice to add some of your favorite activities back into your routine, consider continuing to limit spending on those non-essential activities and save the money instead.
Examine your budget and see if there are other areas where you could save, such as cutting subscriptions or memberships you rarely use. If you're able to work remotely instead of returning to the office, take the money you would have spent on commuting and lunches and move it to your savings account.
Include savings in your budget
While you're revisiting your budget, make sure you have included a certain amount of savings as a line item in your monthly spending plan. When savings is included in your budget, you'll view it as a predictable expense and you'll be much less likely to avoid it.
To make it easier to stay committed to saving, set up automatic contributions to your savings account from your paycheck or your checking account on a weekly, bi-weekly or monthly basis. If your dedicated savings are automatically distributed to your savings account, you'll never see the money and you'll never miss it.
The content provided is for informational purposes only. Neither BBVA USA, nor any of its affiliates, is providing legal, tax, or investment advice. You should consult your legal, tax, or financial consultant about your personal situation. Opinions expressed are those of the author(s) and do not necessarily represent the opinions of BBVA USA or any of its affiliates.
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