The coronavirus pandemic has left millions of Americans unemployed and many households have struggled with lost income in the past 12 months. On the flip side, however, are the people whose finances have improved over the course of the pandemic.
Between business stimulus checks, remote working and canceled social grants, many people are now saving more than ever before. If you’re in this boat, here’s how you can get the most out of your money.
1. Start or increase your emergency fund
If there is one thing the pandemic taught us, it is that you never know when a financial emergency will arise. That’s why it’s important to have an official emergency fund – money to get you through a period of unemployment or to cover unplanned expenses like medical bills, home repairs, or car repairs.
How much money you need for emergencies depends on your living conditions and your level of comfort. If you don’t own a house or a car, have no children, and tend to accept unforeseen expenses, then you can be satisfied with spending three months in the bank. This is really the minimum that you should aim for. However, if you own a home and have a family to support, six months on the cost of living may be a more reasonable goal for you to save.
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Some people also need more than nine to twelve months on the cost of living in the bank to really relax – especially in the wake of the pandemic. There’s nothing wrong with putting a little extra cash on the side if you can.
The best thing to do is to put your money in a savings account. That way, your money is protected. If you’re building a very solid emergency fund – one that covers roughly the cost of living for a year – then you should put the bills in a regular savings account for six months and the rest on a shorter-term certificate of deposit, where you might get a better rate on your money.
2. Pay off high-interest debts
Some forms of debt are considered healthy. For example, a mortgage helps you eventually own an asset (your property) that you can borrow or sell for a profit. Credit card debt, on the other hand, is blatantly unhealthy. Too much of this can damage your creditworthiness, and if you have credit card debt, you automatically pay more for your purchases through interest charges.
If you are struggling with this, it would be wise to use your pandemic-related savings to reduce it – provided, of course, that you already have a nest egg. If you only pay off a single credit card, you can gradually spend more money on getting rid of the others. However, if you are struggling with multiple cards, consolidating the debt through a debt restructuring or a personal loan may be your best option.
3. Start investing
So you’ve saved everything for an emergency and don’t have any unhealthy debts? Great! When you have extra cash on hand, it’s time to invest it – this is how you can build it up into a larger sum over time.
If you are new to investing, open a brokerage account and choose a few stocks that you are familiar with. Often times, investing in companies whose products you use is a good way to get started – but do research on those companies first to make sure they don’t face any particular financial challenges.
4. Save for the future
Your emergency fund is money that you might need next month or next year. But if you’re well positioned there and don’t have unhealthy debts, another option is to save money for your retirement.
Many people can barely make ends meet during the pandemic, but if you save more than ever, you have a great chance of improving your financial situation. At the same time, it can’t hurt to give a little back. In addition to the above, you should consider donating to your favorite charity. You may not be able to donate after the pandemic is over and certain expenses arise (e.g. social obligations and commuting to work), so you can use your current situation to help those in need.
The article, 4 Ways To Get The Most Of Your Pandemic Savings, first appeared on The Motley Fool.
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This article was written in English by Maurie Backman and on April 18, 2021 on Fool.com released. It has been translated so that our German readers can take part in the discussion.