With many Americans and others around the world under social distancing and stay at home orders, they may be finding that their spending decreases. Instead of filling up the gas tank once or twice a week per car, they may only need 1 car and less than a tank a week. They’re no longer stopping for coffee or a breakfast sandwich every morning. They’re not eating out for lunch. They’re not grabbing a quick dinner at the drive through on the way home. Their dinner out budget has dropped. They aren’t going shopping as much, or going out to the movies. Entertainment such as concerts and sporting events are no longer consuming any of their income. So, what should we be doing with this new found money from not spending as much?
First and foremost, understand that we live in very uncertain times, and if you don’t have an emergency fund, now is the time to save liquid (easy to access) cash. Get yourself a savings account, maybe even with a decent interest rate like some banks and online accounts like Ally offer. You can get between 1.5% and 2% interest if you really want to search the best current rate, and then start stashing this extra cash until you have built yourself an emergency fund. Most money experts advocate for 3 to 6 months of pay the rent/mortgage, eat, and keep the lights on expenses. You want to be sure you won’t lose everything if disaster strikes your personal situation.
Once you have that emergency fund, and build it until you’re comfortable, now is the perfect time to pay off any outstanding, higher interest debt. You have extra money right now that you can pay over and above your normal pay off strategy. You can use it to speed up your get out of debt timeline! Start with those credit cards, then private or student loans you intend to pay off in the near future, or car loans with higher interest than 5 to 6 percent. If you’re able to save up an emergency fund, and then get started on these debts or accelerate paying off these debts, you’ll be in much better shape coming out of this pandemic than you were when it started.
If you happen to be lucky enough that you have an emergency fund, and you have paid off all of your high interest debt, and you still have an income right now, this could be a “dream” scenario for you as far as investing is concerned. We don’t know yet what exactly the economy is going to do. We don’t know when the stock market will start going back up, if it’s reached the bottom, what will happen with housing, etc. But we can assume there will be a recovery from the current downturn in the future. Investing in the market, in real estate, or starting a business with a great niche could all net huge gains in the future. You can’t participate in the recovery if you’re not investing, so while it may be scary right now, build and stick to your investment plan. We know the stock market is going to be on sale from previous highs for some time. This isn’t a housing bubble per se, but it’s a good bet there will be some foreclosures as a direct result of this crisis if Congress doesn’t do anything to stop them. Even some leveraged real estate investors may struggle as tenants aren’t able to cover rent. Your strategy is key to building your investment portfolio during this time, but wisely doing so may pay HUGE future dividends when we start to recover. Research and plan, attack from a strong, knowledgable position. I wish you health and wealth as we navigate these times.