Seventy-one percent of Americans made major financial changes in response to the COVID-19 Pandemic, per a recent survey by the digital bank One.
For some, savings rates skyrocketed, peaking at 33% last year. No commutes, cooking at home, and paring back social activities and travel made it quite easy for a huge population to dump their spending dollars into savings or investment accounts. Additionally, those who were fortunate enough to maintain their salaries — and financial stability — during the pandemic were able to sock away some of their stimulus checks. (Thanks in large part to no dinners out, no vacations, and no happy hours, among other things!)
While it’s been wonderful that many of us have been able to save, another large swath of the population completely depleted their savings accounts, and now find themselves in dire financial straits. A salary reduction or lost job left many households reeling, simply unable to keep up with their monthly bills.
Of those who have depleted their savings, a whopping 25% estimate that it will take 4 or more years to rebuild their savings to where it was pre-pandemic. Another 39% expect it to take 2-3 year to reach that savings level. That’s too long.
How Did This Happen?
“Right now, we are witnessing rising wealth inequality like never before,” explains Brian Hamilton, CEO of One. “The COVID-19 pandemic has put millions of people out of work. In fact, even of “middle-income” households, 42% reported being unemployed at some point during this pandemic,” he adds. Hamilton also notes that for those who didn’t face any financial hardships in the last year, saving was a simple luxury “while those who did suffer income losses were saved only by the grace of loan and eviction moratoriums.”
One’s survey aimed to figure out what it will take to rebuild a savings account from the perspective of those who are about to climb the mountain to get there. “When it comes to their money, people do have a strong sense of their goals and what it takes to achieve key financial wellness milestones,” Hamilton notes. It’s likely the 4-year figure came from knowledge of how long it took to build savings in the first place. Or, individuals might be estimating how long it will take to rebuild as they face a new financial reality, like more bills or a lower income.
Can I Rebuild My Savings Back Faster Than That?
You betcha. In fact, there are plenty of ways to maximize income and increase savings. Here’s how.
Tap Into Unemployment
The majority of people — 7 in 10 —- have been unemployed at some point over the past 10 months due to the ongoing global pandemic, and these are not just low-wage workers, Hamilton reports. If you’re still unemployed, you can qualify for federal and state unemployment benefits. In the most recent stimulus package, the federal government will send you an additional $300 per week (that’s in addition to what you’ll receive from state unemployment) through September 6.
Automate, Automate, Automate
“The easiest way to rebuild savings is to make it automatic,” Hamilton says. Program your bank to send a certain amount of money straight to your nest-egg every pay period so money is being saved without you having to think about it. Doing the same with retirement accounts — if you can — is a great way to catch up on missed savings on that side of things if you had to pause payments during the pandemic.
Baby Steps Toward Rebuilding Savings
Those transfers to savings don’t have to be massive, either. Small daily increments can help to make saving manageable, Hamilton says.
At the end of each day, if you can transfer even $5 back to savings, that’s $5 closer to your goal of rebuilding your savings than you were when you woke up.
Save In New Places
According to One’s survey, of those who have cut spending to survive this pandemic, the top five areas people have saved the most are:
- 76%: eating out less and cutting down take-out meals
- 55%: not traveling
- 42%: not buying clothing
- 38%: avoiding brick-and-mortar / offline shopping
- 35%: going to hair and nail salons less frequently
If you find that you’re strapped with cash, but still overspending in any of these (or any other) categories, maybe it’s time to reconsider what’s most important to you — and your budget — right now.
The Future Of Saving — And Rebuilding Savings
The way we have saved since March 2020 has been… different. “This pandemic has been unique among recessions in that we also had shutdowns of countless key industries,” Hamilton explains. We were forced to cut spending since so many places that we used to visit for fun were — and still are — closed down. There has been no place to spend money, even if we wanted to.
Whether your savings rate soared, or you depended on your savings to survive, “Americans will be emerging from this pandemic with a “savings” mentality, and the decades-long descent into consumerism has surely been shaken,” Hamilton says. The CEO anticipates these savings habits will hold and that a future ripe with savings is likely.
MORE ON HERMONEY:
- 9 Things Most of Us Don’t Do At the Grocery Store (But Could Save Us $100 or More)
- Sidecar Accounts Make Saving in a Bank as Easy—and Automatic—as Saving Money in a 401(k)?
- Lighting The Path To Savings And Security With The FIRE Movement
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