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

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When it comes to building your savings during a recession, it’s usually easier said than done and ultimately depends on your current financial situation.

Even during non-recessionary periods, getting into the habit of saving can take time and you still may make a few mistakes here and there.

To help you navigate saving during a recession, we asked a number of experts what some of the most helpful things to do are, as well as some things you should try to avoid at all costs.

Do: Revisit (or adjust) your savings goals

While saving may seem like an impossible task amid a recession — especially if you or someone in your family is dealing with unemployment — it’s a habit that you should try to stick to (or build) even if the amounts contributed are small.

In general, experts advise that you save enough to cover three to six months of your living expenses. However, if you are only able to contribute smaller amounts then that’s okay too — it’s getting into the habit of saving that’s the important part.

“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 are in a more fortunate situation and still 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 savings are easily accessible (and penalty-free) if you need to access it.

In general, that translates to opening a high-yield savings account as it grants you the ability to easily access 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 adviser at Personal Capital in Denver.

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 choosing a liquid account, choosing a separate account to store your savings, in general, is 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.

To see which high-yield savings account may be right for you, check out Bankrate’s full review of various banks’ offerings. 

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 where you can 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.

After identifying expenses you can cut, look to see where you might be able to lower your monthly payments through negotiation. For example, cell phone and cable bills are often negotiable.

Do: Stay motivated

According to a May 2020 study by the American Psychological Association, 70 percent of Americans reported the U.S. economy as one of the leading stressors in their life.

This information should come as no surprise given the year we’ve had, but it’s also not an exclusive 2020 problem — the topic of money always manages to be at the top of the stress list.

If you’re one of the 70 percent stressed out, we know that it can be challenging to stay motivated. Experts advise that the key to getting motivated is to come up with a plan of attack.

Some other tips that you may find helpful include:

  • Setting goals (even fun ones)
  • Draw from the success of those around you
  • Change the way you think about 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.” says McBride.

This is especially important to remember with the holidays coming up as it can be tempting to put gifts on a credit card or layaway, and pay it later. But it’s just not worth it.

Be sure you assess your personal financial situation to see what you can truly afford. The last thing you want is to risk falling deep into debt, especially during uncertain times, all for a season that comes and goes.

Don’t: Accumulate high-interest debt

Given the challenging year many of us have faced, you may be forced to take on some amount of debt in order to afford the necessities. 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.

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

Don’t: Be discouraged by low savings rates

It’s no secret that interest rates for savers are at disappointing lows and while this is not ideal for growing your returns, it shouldn’t discourage you from parking at least some of your savings in an interest-bearing account.

“You want to save somewhere that is accessible AND earning something, even in this low-interest-rate environment,” says Hammortree.

While interest isn’t the main objective of emergency savings, per our previous point, it’s definitely a bonus to seriously consider. Your earnings may not look as pretty as they did a year ago, but it’s still “free money,” and who doesn’t want their money to work for them?

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

When it comes to saving, it’s important to consider both your short- and long-term financial goals. While you may be more focused on just surviving right now, try not to forget 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 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 towards 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,” says Fine. “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.”

The bottom line is that everyone’s financial situation is different and needs to be evaluated on a personal level so that you can adjust your plan accordingly.

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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.
Edited by
Senior wealth editor