How to Save Money During A Crisis
- May 4, 2020
- by Michael
The United States, along with most of the world, is in a recession caused by the outbreak of the Coronavirus. However, there are plenty of ways to save money during the crisis. Additionally, creating good financial habits now will help you come out on the other side of the crisis stronger than before. Here are a few of the best ways to save money, especially during the economic downturn.
Protect What You Have
In business they say “cash is king” and when it comes to staying afloat protecting your cash position is the top priority. Now would not be a good time to open new lines of credit, take on loans or make major purchases. With everyone cutting back the economy as a whole slows down. That in turn makes it harder for everyone else… but you need to focus on yourself.
Take a look at your emergency fund. Ideally you have three to six months of expenses set aside in the case of lost employment or interruption in your income (such as the pandemic).
Your emergency fund, plus your current income or unemployment benefits is what you have to work with. If you have a Roth IRA, your original contributions are also available tax free.
Consider Your Budgetary Wants vs Needs
Now is the perfect time to create a budget. With a budget, you can see exactly where your money is going and understand where you have opportunities to save money. While your budget may look different during a crisis, you will be able to evaluate your spending and understand where your priorities lie before exiting the recession.
In budgeting there are two main categories: wants and needs.
Wants are things like eating out, a new pair of shoes, a vacation.
Needs are things that must happen, like rent, health insurance, groceries. Given the wide spread shutdown of the economy many people being forced to focus only on their needs. Many are being forced to make some very tough decisions as to which need will be paid and which need will be skipped.
Things are Fluid For Everybody
As part of the coronavirus outbreak each person’s definition of wants and needs has become a bit more fluid. For example, we used to have $200 set aside for restaurants each month, but with our fear of getting sick, we’ve decided to strike eating out from our budget entirely.
At the same time, land lords, mortgage lenders, credit card companies, and utilities are more understanding towards late or delayed payments.
In fact, your mortgage lender is required under the CARE act to allow you to delay or reduce payments if you have been negatively impacted (haven’t we all??).
Utility companies are waiving service shut off and offer assistance programs. Many areas have also put a halt on evictions.
If finances become really tight, it will help to know what your options are.
Take Advantage of Low Rates
Now is also the perfect time to refinance your debt or cash in on some home equity. Interest rates are at historic lows, which central banks around the world have done to encourage spending. Therefore, you might be able to refinance your mortgage, student loans, and other debt at a lower interest rate. This would help you to save money on your loans over time.
Look for Practical Ways to Save
As we all spend more time at home, some savings are coming naturally. For example, most people are spending less on food as they cook more at home, and less on travel as most flights have been canceled. However, there are plenty of other ways that you can save some serious cash.
Save on Insurance
If you are not driving your car, you may be able to change your car insurance to save you money. Most states and car insurance providers will allow customers to choose a form of ‘storage insurance’ if they are not using their car. This could help some people save over a hundred dollars per month. If you are a multi-car family, you may want to consider storing one car and only using the other during the economic crisis.
Cancel Unused Memberships
Now is a great time to evaluate which subscriptions and memberships you don’t need. For example, if you receive a clothing subscription each month but aren’t spending time outside of your home, you may be able to save money by canceling or pausing that membership. If you belong to a gym, you might also be able to pause your membership until the gym opens back up.
Defer Payments When Necessary
If you are unable to make your payments or have seen a significant decrease in income, then you may want to contact your lenders to see if you can decrease or defer your payments. For example, Apple is allowing Apple card owners to skip a monthly payment if they need to. However, it is important to note that you will have to make these payments in the future, so only defer payments if you can’t pay them.
You should only do this if necessary, as paying off loans while they are not being charged interest can help you pay less on them in the long run.
Cook at Home
A simple way to save money is to cook at home and use inexpensive ingredients. If you spend a lot of money dining out, then you may be inclined to continue to get takeout. However, making just a few extra meals at home each week can help you to save hundreds of dollars per month. There have been runs on dry yeast (and we couldn't get any for weeks). So if you are thinking of taking up baking you may need to wait for certain ingredients.
Avoid New Debt
It may be tempting to take out a personal loan or use credit cards during a financial crisis. However, avoid taking on new debt if possible. This may mean cutting back on your lifestyle by being more frugal. You may also want to shop around for a 0% interest loan if you do need to take out additional cash to live on. Remember, any debt you accrue now will need to be paid back in the future, even if it is interest-free.
The Bottom Line
The financial crisis caused by Coronavirus has impacted individuals, businesses, and governments. Everyone is making concessions to make it through the economic downturn, and by making some strong financial moves, you can come out on the other side with better habits and lower bills.