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What to Do If You’re a 2021 Super-Saver
When the COVID-19 pandemic hit America in March 2020, consumer spending took a serious hit. With so many businesses and sectors of the economy locked down and many people hunkering down in their homes, consumer spending dropped around 30% throughout March and April.
Since then, there has been a steady recovery in spending, but not an equal recovery. The Opportunity Insights Economic Tracker paints a very interesting picture of the economy during the pandemic — while spending for low-income families has basically returned to pre-COVID levels, the top third has not. In fact, spending for that top third is still 7.5% lower than it was before the pandemic.
Why is that happening, and what does it mean? Joe Pinsker in The Atlantic offers an explanation, that the pandemic has created a class of super-savers. Many of the people in the top third of income earners have simply altered their lifestyles in a number of ways, and many of those changes have persisted even after the lockdowns have rolled back.
But why is this?
WFH has eliminated commuting costs
Many large companies, particularly those in the tech and information sectors, have moved much of their workforce to a WFH status, and that status will continue for the foreseeable future. Google, for example, is allowing its employees to work from home through at least next summer, and Apple is on mostly work from home status until spring.
[ Read: The Best Savings Accounts of 2020 ]
For those employees, their commuting costs suddenly became nonexistent. They’re no longer driving to work or taking mass transit. That means they’re not stopping for breakfast, coffee or eating out for lunch or stopping to shop on their way home from work. That money’s gone from the economy.
Many people are traveling less and eating out less
The airline industry is hurting. The most recent data indicates that leisure airline travel is down about 50% over a year ago and, even worse, corporate travel bookings are down 87%. Airlines have scrapped tons of regular flights and routes to compensate for this.
American Airlines and Delta Air Lines both announced upcoming layoffs. According to Forbes, American plans to downside 19,000 jobs while Delta will cut 2,000 pilots from its workforce.
The airline industry believes it will take at least four years to recover from the carnage. This has overlapped into a big impact on things like hotel bookings and tourist destinations as well.
Restaurants are still feeling the effects, despite most states allowing dine-in customers. According to a recent report from the National Restaurant Association, staffing levels are still 2.3 million jobs short of pre-pandemic levels. While some customers are heading back to restaurants in full-swing, it’s clear that many people are staying home and eating out much less than they did before COVID-19.
People are buying fewer luxury goods
Although luxury goods sales are somewhat rebounding, they are still far off last year’s numbers. For example, Macy’s has seen a nearly 40% drop in revenue over the same period last year. Some tech products have sold well, such as Apple, but that could be due to people gearing up to work or attend school from home.
[ Related: The Best Personal Loans of 2020 ]
The saved money isn’t going back into the economy
For the most part, the money that people aren’t spending isn’t going anywhere else; it’s sticking around. People are simply saving for the future and addressing long-term goals. For many people, it’s just sticking around in their checking accounts.
From Pinsker’s article:
That 60-something … has been saving enormous amounts of money during the pandemic. Recently, he realized just how much more slowly cash has been flowing out of his checking account this year: His balance was about $70,000 higher than it would have been in normal times … There’s “just nothing to spend money on,” he told me.Joe Pinsker
Because of all these spending cuts, families are simply not spending money at the rate they normally do. While many people see their checking accounts deplete every month or are living paycheck-to-paycheck, this new situation may find people saving more. Even the most financially responsible people before the pandemic are finding their bank accounts extra cushiony.
If you’re in this situation, where your spending has dropped even though your career hasn’t really changed, what are the smart financial moves to make?
4 financial moves to consider if you’re a 2020 super-saver
Many people fell into being a super-saver — meaning they’re spending a smaller percentage of their income than they even intended to — due to the changes that 2020 has brought to all of us. Rather than just going on a buying binge when things return to normal, what are some smart financial moves people can make?
Take that extra money and use it to eliminate any household debt that you’ve accumulated. Do you still have credit card debt? Chop it down. Do you have outstanding student loans? Make them go away. Do you still have a car loan? Make it vanish.
These moves improve the monthly cash flow in your life by permanently eliminating those bills. They’ll also save you a lot of extra money in the long term because you won’t be paying interest on those debts.
Give a big boost to retirement savings, perhaps in a Roth IRA
This might be the perfect year to make a big contribution to a Roth IRA if you’ve never done so before, or a traditional IRA if your income is too high for a Roth.
Furthermore, if you have a great retirement plan through your workplace, it’s time to increase your retirement contributions. If you have a healthy buffer already sitting in your checking account, a small reduction in your take-home pay won’t make much of an impact, and you’ll build substantial retirement savings going forward.
Save for a down payment
If you have a major life goal ahead of you, such as owning your home or upgrading to a different home or buying a piece of land in the country to build on, this 2020 surplus is a perfect opportunity to kick start savings for that goal. A smaller alternative is saving up so that you can pay cash for your next car replacement.
If the goal is still far in the future, consider opening an investment account and putting that money into aggressive investments. However, if that goal seems close, a savings account is a really safe and stable option.
Plan for something special in one to two years
Another option to consider is to do something extraordinary in a year or two when coronavirus has largely faded into the past. Perhaps you could plan an international trip or you can finally do that kitchen renovation you’ve been thinking about.
The money that you save in 2020 can be the start of something bigger in the coming years, so if your debt is paid down and you’re not moving to a new house anytime soon, use 2020 to jumpstart saving for something else.
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