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Do’s and don’ts of saving during a recession

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Strategies to build your savings during a recession may involve adjusting your savings goals and cutting expenses, while paying down loans and avoiding additional debt. Getting into the habit of saving money takes discipline and can be challenging even during non-recessionary times.

To help you navigate saving during a period of economic decline, we asked a number of experts for useful strategies, as well as some pitfalls you should try to avoid at all costs.

Do: Revisit (or adjust) your savings goals

While saving money may seem like an impossible task during a recession — especially if you or someone in your family is dealing with unemployment — it’s a habit that you should try to maintain, even if the amount you’re putting away each month is small.

In general, experts advise that you save enough to cover three to six months of your living expenses. Even if you’re only able to set aside a small amount each month, it pays to get into the habit of saving money regularly.

“It’s a great idea to have your savings direct deposited into a separate account,” says Larry DePaulis, financial adviser and lead portfolio manager at UBS Financial Services in Boston. “[That way] each time you get paid, the amount that hits your checking account is truly what you have available to spend. This makes it easier to know when you need to cut back on discretionary purchases.”

If you have a steady income, consider increasing your savings contributions and make it a goal to fully fund your emergency savings.

Do: Keep your savings liquid

When it comes to deciding where to store your emergency fund, it’s important to make sure the money is easily accessible in case you need it for unplanned expenses such as a costly medical bill or car repair.

high-yield savings account gives you easy access to the funds while also earning some interest. However, earning interest shouldn’t be the primary objective when it comes to building your emergency fund.

“Your primary goal should be to keep the money safe and liquid,” says Scott Schleicher, senior financial advisor at Personal Capital.

Schleicher advises that savers read the fine print when choosing an account and look for caveats like:

  • Withdrawal limits
  • Withdrawal restrictions
  • Fees for withdrawing

In addition to having a liquid emergency fund account, keeping a separate account for additional savings can be a smart idea.

“Keeping this money in the same place makes it too easy to dip into it for non-emergency needs.” says Annette Hammortree, CLTC, RICP, owner of Hammortree Financial based in Crystal Lake, Illinois.

Some high-yield savings accounts offer rates more than 15 times the national average, so it pays to shop around.

Do: Try to cut or negotiate expenses where you can

Even if the recession hasn’t negatively affected your finances, it’s still a smart idea to evaluate your expenses and look for opportunities to cut back on spending or negotiate bills.

“The most direct pathway to increased savings often involves cutting back or eliminating certain expenses,” says Greg McBride, CFA, Bankrate chief financial analyst. “Re-evaluate your needs and your lifestyle to identify opportunities to reduce expenses.”

This means taking stock of all of your recurring expenses and identifying what’s a necessary expense and what’s not.

In addition to finding expenses you can cut, for monthly bills you might be able to lower through negotiation. For example, cell phone and cable bills are often negotiable.

Do: Stay motivated

More than half (58 percent) of adults surveyed in a June 2022 Bankrate poll reported feeling concerned about the amount they had saved for emergencies. What’s more, surveys indicate Americans currently have the lowest level of confidence in the country’s economy ever.

The topic of money is at the top of the stress list for many consumers, and it can be difficult not only to find ways to save money consistently, but also to stay motivated about it.

Experts advise some helpful ways to get motivated to improve your finances include:

  • Setting goals
  • Draw from the success of those around you
  • Learn from past mistakes to help avoid taking on new debt
  • Be willing to accept mistakes you make along the way

Don’t: Take on extra debt due to large, unnecessary purchases

When it comes to your money and surviving a recession, one major pitfall you should try to avoid is accumulating extra debt due to large, unnecessary purchases.

“Economic uncertainty is a time for reducing debt and boosting savings, not the other way around.” Bankrate’s McBride says.

One of the ways Americans commonly take on debt is holiday shopping, when it can be tempting to charge gifts on a credit card or use buy now, pay later services — both of which can result in hefty interest charges if not paid off in time. Some advance planning, including setting aside money each month throughout the year, can help you avoid such debt pitfalls.

Don’t: Accumulate high-interest debt

Consumers may need to take on some amount of debt in order to afford the necessities in times of recession, especially if inflation is elevated. While it’s not ideal, there are a few steps you can take to soften the hit.

The first step is to try and avoid high-interest debt at all costs, which is typically associated with credit cards. One way to avoid this is to look into credit cards that offer introductory zero percent promotional interest periods or balance transfers to such credit cards.

While these zero percent rates won’t last forever, they can save you from accumulating interest on essential purchases while you work to get back on your feet.

Don’t: Be discouraged by low savings rates

While savings account rates at many brick-and-mortar banks remain at rock bottom, yields at most online banks and credit unions have been rising in response to the Federal Reserve’s interest rate hikes this year.

For instance, brick-and-mortar banks often pay an annual percentage yield (APY) of around 0.01 percent on a savings account, while many other online banks currently offer APYs of 2 percent or higher.

While interest isn’t the main objective of emergency savings, it still pays to maximize the yield on an account set up for emergencies or for other savings goals.

Don’t: Lose sight of long-term financial goals

It’s important to consider both your short- and long-term financial goals when it comes to saving money. While you may be more focused on just surviving right now, try and remember to think about your future self.

“The route to financial security is to be saving for both emergencies and retirement, not just one at the risk of the other,” says Bankrate’s McBride.

Michele Lee Fine, RICP, CEO and founder of Cornerstone Wealth Advisory in New York City, suggests evaluating your retirement portfolio to ensure it’s targeted toward your retirement age and risk tolerance.

“If you are further away from retirement, you have more time to get through and recover from market volatility and down markets,” Fine says. “If you are closer to retirement, make sure that you are gradually starting to mitigate risk, looking more at creating passive income streams for the near future that will be sustainable.”

Whether you start planning for your golden years early in your career, or you’re getting off to a later start, finding the best retirement plan for your individual circumstances can help maximize your return.

Bottom line

Saving money and paying down debt are key to financial wellness, especially during times of recession and rising prices. Staying on track can be possible when you put effective strategies in place and remain motivated to increase your savings and eliminate debt.

Written by
Liz Hund
Creative producer
Liz Hund is a social producer at Bankrate and occasionally writes special features on-site with a social-first angle. Her writing has been featured on MSN, Business Insider and in various local publications.
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Managing editor