How Staying Safe Could Lead to Substantial Savings
With all the time spent at home lately, it’s no surprise that many people have been saving money. What some call the “homebody economy” has led many to spend less on travel, commuting-related expenses, entertainment, and more. Months of stay-at-home orders and social distancing, coupled with increases in unemployment, have made many individuals much more cautious about spending money. This feeling of financial uncertainty means that many have consciously cut down on discretionary spending. The U.S. Bureau of Economic Analysis said the personal savings rate, which measures how much people save of their disposable income, hit a historic 33% in April; this is the highest since they began tracking fifty years ago and nearly double the previous record (17.3% in 1975).
This decrease in personal spending can and should translate into an increase in savings. This is the perfect time to reevaluate your long-term goals, review your budget, and plan for your financial future. If you find yourself spending less lately, consider using that extra money to create or increase your emergency fund, add to your retirement plan, or fun your child’s or grandchild’s education.
A recent survey by Silvur showed that 48% of Baby Boomers have reduced their spending by up to $500 a month during this time, and 53% of Gen X and 62% of millennials have as well. If you redirected even a quarter of that into long-term retirement savings, the potential boost to your is huge. Let’s say a 50-year-old saved an additional $125 a month and earned a modest 5% interest. By the time that person reaches 70, they would have saved an additional nearly $50,000. A 40-year-old doing the same thing could save an additional $100,000, and a 30-year-old could save an additional $182,000, by the time either is 70.
Despite the potential to grow savings, it can be hard to invest when news reports are negative. Unemployment rates, elections, COVID-19-related economic uncertainty, and so many other factors have created market volatility this year, which has left many investors skittish about investing. Don’t forget that one of the most important investing concepts is “buy low and sell high,” which means buying when the market is underperforming and selling when it’s performing well. Another important concept is that a long-term plan is designed to help you withstand short-term market movement. Taken together, these concepts demonstrate that the best way to achieve your goals is by investing in your future and staying the course.
If you feel that you could be putting your “coronavirus savings” to better use, do not hesitate to contact me. I’d be happy to help.