As we all know, millions of people are struggling financially during the Covid-19 pandemic. Countless jobs have been lost and unemployment is at record high rates. The nightly news shows heartbreaking images of long lines at food banks and tells stories of people forced to make incredibly difficult economic choices like quitting a job to manage virtual learning for their young children.
We are incredibly fortunate to live in the Washington, DC area, which has a very stable economy thanks to the presence of the Federal government,. While people in our region have certainly lost jobs, things are not quite as bleak as the rest of the country.
In fact, we’re hearing from many clients and friends that the pandemic has actually improved their financial situation. Stay-at-home orders and fears of contracting Covid-19 have kept people at home and not spending unlike any other time in recent history. Many people are actually SAVING money during Covid.
A TD Ameritrade survey undertaken this spring found that an overwhelming majority of people are saving money — just by virtue of being stuck at home. This research found that 78 percent of Americans are spending less by not dining out; 75 percent are saving money by not taking vacations. Overall, U.S. restaurant spending is down 30 percent, travel spending has decreased 80 percent, and entertainment expenses, such as attending movies, sporting events, and arts festivals, is down almost 100 percent (Earnest Research).
The savings data supports these numbers. For the last century before Covid, the national personal saving rate (the percentage of after-tax income the average American saves/invests) had always been between six and eight percent. As the Covid pandemic wore on, this rate jumped to more than 30 percent in April. Wow!
Think about all of the things you’re NOT spending your money on: going to bars and restaurants, new work clothes, your daily latte on the way to work, a gym membership, personal travel, and (perhaps) childcare. You’re likely also saving money on gas and/ or commuting costs. Some people who have extra time on their hands are finding side hustles (mask-making, for example) which is bringing in even more income.
20% of millennials say their budget situation has improved since the onset of the pandemic.
Saving Money During COVID? Here’s What To Do With It
If you’re one of the fortunate people to be in this situation, you may be asking yourself — what to do with this extra money? It’s certainly tempting to use these new savings for something indulgent or fun, but our advice? Be smart. Here are our recommendations for the best ways to put these savings to work.
- Before all else: shore up your emergency fund. A JPMorgan Chase study found that an alarming 66 percent of people do not have the recommended six weeks of take-home pay set aside for an emergency. If nothing else, this pandemic has taught us how the unexpected can — and will — occur.
- Pay down debt. Now is the perfect opportunity to make extra payments towards credit card debt, student loans, and car loans. Think how great you will feel when that balance hits zero!
- Save for retirement. Make an IRA contribution or increase the percentage you’re putting in your 401(k) or 403 (b).
- Make a major purchase — without a loan (car, home renovation, etc).
- And last, but not definitely least, save it for a new home!
As Realtors, we are, of course, a bit biased towards this last suggestion. But we all know homeownership is the American Dream. It is the surest way to build wealth and the sooner you can get in the market, the better.
Whether you’re looking to buy your first home, upsize, or just looking for a change, use this highly unusual situation to bolster your downpayment towards a new home. With an increased downpayment, you can increase your budget or lower your monthly payment.
The Bottom Line
If you’re fortunate enough to be in the situation of saving money during this time of crisis, be smart about it! Set up your emergency fund, pay down debt, and save for your next home.
If you’d like to talk about a possible move, please let us know. We’d be happy to chat anytime by phone, email, or Zoom, about what makes sense for you.