As the impact of the Coronavirus, or COVID-19, continues to impact families, businesses, and the economy as a whole, many consumers are now faced with the decision of how to best spend their money, including their tax refund or stimulus check. With many individuals finding themselves suddenly in an uncertain economic situation with reduced hours or the potential for loss of one or both incomes, it’s a good time to consider budgets, finances, and how best to plan ahead.
According to the Internal Revenue Service, approximately 72% of taxpayers received a refund in 2018 and 2019. Last year, consumers planned to save approximately 41% of their 2018 tax refunds. By comparison, projected savings of tax refunds for 2019 are up to 50%. This could be due to the recent uncertainty of COVID-19 and the economy.
"During these perilous times, consumers have suddenly found themselves in a position where they may have to rely on their savings to ensure that their everyday living expenses are met. This could be due to job loss, reduced hours, or even temporary layoff," said Jennifer Miller, Product Management Officer for First Bank. "Whatever challenges our clients face, we are here to help them reach their short and long-term savings goals."
The average American savings may shock you. On average, many Americans are unable to meet a $100 unexpected expense. According to a study conducted in 2019, 24% of Americans surveyed had less than $1,000 in savings, while an overwhelming 45% of them had nothing at all saved. The time to start saving is sooner versus later.
For peace-of-mind and security, it’s advisable to have three to six months household expenses in an emergency savings fund that’s readily accessible. This is especially true in any economic environment or for emergencies that may come your way. Remember, these emergency savings are not kept in your long-term retirement planning accounts.
If you’d like to devise an emergency savings plan, we’d like to offer the following suggestions:
- Establish a household budget. Gather all of your bills together so you know exactly how much you spend each month. Don’t forget to include things like food, clothing, pet supplies, and household items. Find any free online calculators or use First Bank’s Household Cash Flow Calculator to plug in your numbers and establish a monthly budget. This will help you determine how much your household normally requires each month in order to operate. Keep in mind, that in an emergency situation, you’d want to focus only on the necessities (food, shelter, medical insurance, and reasonable transportation) versus the wants. For instance, if you found yourself unemployed, keeping costly monthly subscriptions probably wouldn’t make sense.
- Find areas that can be trimmed down or eliminated altogether. In normal circumstances, this would include things like dining out and entertainment; however, in the COVID-19-era, these areas are all already trimmed due to social distancing guidelines. Perhaps you’ve found that you’re able to workout at home or enjoy walking, so maybe the gym membership you were paying monthly for can be eliminated? As many Americans are finding themselves cooking more or the majority of their meals at home, perhaps you could stay the course and eliminate dining out as frequently after the crisis is over? Look at past bank statements to see what your average dining out cost was and consider allocating that amount now to your emergency savings fund. Were you paying for daycare previously but now find that cost has been suspended and you’re working remotely? Consider using that amount for your savings. These areas can add up to really big savings over time.
- Open a savings account that you dedicate to your emergency savings. By finding areas that can be trimmed down or eliminated altogether, you’ll probably find a set amount that you can devote to savings. Don’t forget to set up automatic savings to your savings account through your First Bank eBanking portal. If you will receive a tax refund or are eligible to receive a COVID-19 stimulus check, consider socking it away into your savings for a rainy day. Remember, covering the basics and essentials during any crisis will be necessary.
- Get started with savings. Keep in mind, it doesn’t matter how little or small your savings allocation may be, it’s just important to get started right away. Of course, if long after the crisis has been averted, you find that you didn’t need to access your emergency savings for the COVID-19 situation, we encourage you to stay the course. With some planning and the proper financial tools, you may find that you’ll enjoy watching your savings grow.
First Bank offers a variety of savings account options to help you reach your short and long-term savings goals. Get started saving today!
* GoBankingRates. November 25-26, 2019.