Today’s guest post is by Harvest. Need bank fees or credit card interest charges refunded? At Harvest, we know every bit helps during these trying times so if you’ve gotten bank fees or interest charges in the past, head on over to Harvest to see what we can do for you!
This article is for those of you who are lucky enough to not currently be going through financial difficulties as a result of COVID-19.
For the past week and a half, just like most of you out there, we at Harvest have stayed indoors and have been practicing social distancing.
These periods of social isolation can be trying. They can be daunting.
But there is a silver lining.
According to an article by Business Insider, Americans on average spend at least $2000 a year on dining out.
That’s around $160 a month (this figure may be higher depending on the cost of dining out in your state).
So with restaurants, bars, and other entertainment venues closed, if you’re lucky enough to have been financially unaffected by COVID-19, you may right now be sitting on a pool of excess funds.
Waiting to be saved (your funds, not your socially distanced self) or used to pay off any high interest debt that you might have.
What can you do with these extra savings?
What to do with extra savings
Let’s assume that you’re now spending $100 less than you did prior to COVID-19.
Here are three suggestions for what to do with extra savings:
- Save up towards a long-term financial goal
- Save up so that you can increase your student loan payment (if you have student loans)
- Pay off credit card debt
Save up towards a long-term financial goal
With extra funds, now may be the time to start saving up towards a long term financial goal.
Like buying a home.
Starting a retirement fund.
Or maybe a college fund for your kids.
With interest rates forecasted to plunge, if you’re close to having enough for a home, use this opportunity to speed up your progress by saving even more than you used to.
Increase your student loan payment
So, if you’ve been making student loan payments, you should find yourself with at least $300 to spare for this month and around the same amount next month, and for every month after until October.
With those extra but temporary savings, consider putting that money aside so that when payments do return, you’re able to make higher payments towards your loans and accrue less in interest in the long term.
After all, student loans are still high interest debt – 4.53% being the average rate of interest according to NerdWallet.
So, strongly consider taking whatever you’re currently saving in reduced spending and suspended payments and putting it away so you can make a serious dent in your debt when the time comes to start payments again.
Or you can make a head start on any credit card debt you have lying around.
Pay off credit card debt
As we probably all know, credit card debt is high interest debt.
What’s more, unpaid interest is added to your statement balance.
And if that statement balance remains unpaid, you start paying interest on accrued interest.
The point we’re trying to make is that credit card debt is a problem that compounds itself over time.
And thus should not be ignored.
With extra funds, if you do have credit card debt lying around, dedicate those funds to paying off your debt and save yourself from future financial headaches.
Alternatively, try a balance transfer and use your extra funds to pay the upfront fee that comes with transferring balances.
What to not to do with extra savings
What you should avoid doing with your extra savings from social distancing is finding other ways to spend it.
Our guess is you’ll probably be spending more on:
- Entertainment subscriptions
- Groceries (more on this later)
- Online purchases
After all, as Lesley-Ann Scorgie of MeVest points out in her article on why you should cut down on your non-essential spending:
Boredom is bad for your bank account.
It’s tempting to splurge on new TV show subscriptions or music subscriptions.
It’s tempting to spend extra on groceries because you’ll be in all day and want a variety of foods to choose from.
It’s tempting to spend your extra funds on online purchases that you think will help keep you entertained during this trying period.
But as we all know, while giving into the temptation to spend what you know you shouldn’t be spending is fine from time to time, doing so now may lead to unintended financial consequences down the line, such as a further increase in whatever credit card debt that you may currently have.
Yes, late fees are being suspended, but that does not mean a blank cheque to pay your statement balance at a later date and watch it increase uncontrollably as you try to spend whatever spare funds you now have.
Fiscal discipline, even in times of surplus (if you’re lucky enough to find yourself financially unaffected by COVID-19), is the key to financial well-being.
Alternatively, reconsider your relationship with your consumerism, an approach outlined in Casey Hynes article on a Stoic approach to finance, which you can find on Aspiration Bank’s blog Make Change.
And remember, not spending does not mean you can’t have fun, as Alyssa Davies of Mixed Up Money has shown us in her article on 7 fun and affordable activities to do while social distancing.
Boredom can be hard.
Social distancing can be hard.
These sources of pain and discomfort are immediate and apparent.
While the benefits of financial habits that you start during this time period may be miniscule, barely noticeable.
After all, $100 saved this month may only grow to $102 a year after, assuming you’re able to get a 2% annual return on it.
Know, however, that that is the reality of starting positive habits.
The benefits, while small, will compound.
Until one day, you find yourself with 100 months worth of $100 savings.
Which amounts to around $10,300, enough for half of a down payment for a home in certain states.
While the benefits of giving in to instantly gratifying but destructive financial habits?
They don’t exist.