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Financial Behavior and Spending Amid COVID-19
The following is sourced from our financial technology partners, MX.
The COVID-19 pandemic has left the nation in shock as government officials take action to limit travel, enforce bar and restaurant closures, and ban large gatherings of people. At a time when we’re all taking precautionary measures towards recovery, most people are feeling the economic effects. This attempt to flatten the curve by limiting the virus from spreading is leaving many Americans without jobs and unable to make ends meet financially. According to the American Payroll Association, today, more than 70% of Americans live paycheck to paycheck.1 Additionally, Bankrate reports that 3 in 10 have no emergency savings at all.2
As people start to prioritize their savings and reassess their spending, we’re seeing a spike in digital trends. At a time when people are unable to visit physical branch locations, digital is the only alternative to keep them in the know about their finances. MX data shows a 50% increase in digital engagement with mobile banking apps* since December. This makes sense considering banking is one of the most important parts of people’s lives, and perhaps, even more so right now.
MX survey data shows more than 70% of people say it's important to put money away for a rainy day or for unexpected expenses; however, fewer than half put away more than 10% of their monthly income. Even amongst Americans who do budget, more than 50% attribute going over their budget to monthly living expenses (e.g. mortgage, rent, utilities or auto loans), with 1 in 4 exceeding their budget primarily on entertainment and luxury items.
What’s more, our research shows, less than 20% of Millennials and 25% of Baby Boomers say they typically stay within their budget. And a staggering 50% of people attribute insufficient income as the single biggest impediment to increasing their savings, while 30% cite essential living expenses. There’s no denying that budgeting and keeping track of finances can be hard, but it’s surprising to see that nearly 60% of people say that their primary financial institution doesn't help them become financially stronger.
With things continuing to change, as we adjust to this new normal, it’s more important than ever before to have a clear plan for how to manage your finances and make the most of your money.
60-Day Action Plan: How Consumers Can Manage Their Finances Wisely
Regardless of where you are in your financial life, here are a few things you can do to work through the current crisis and set yourself up for better financial success in the future.
- Talk with your partner: Have the hard conversation with your partner or family about your overall financial situation. Both partners should have equal access to and equal say over your finances. The more transparent you can be with one another, the easier it becomes to stay aligned with where funds are being allocated as things continue to unfold. At a time when tension and panic are particularly high, it’s a great initial step to mitigating added strain to an already stressful situation.
- Get in the driver’s seat: You are in control of your financial future - nobody can or will do it for you. Although this may feel daunting at first, there are many ways to take a proactive approach in managing your money. Start by assessing your situation: make sure you know how much money is coming in, how much is going out, and how much you have in savings. With a full picture of what you have available, you can prioritize spending more effectively.
- Create a budget. Get specific with your budgets. Once you confirm how much money you have coming in and what your monthly expenses are, it’s time to get more specific. Make a list of all the things you need to budget for, then allot a specific money amount to each area. This is a place where technology can help. If your bank and credit union offer personal financial management solutions, it’s time to put them to use. They can show trends over time and help make the budgeting process easier to keep up with, so you can stay on track. Even if you don’t have a digital solution, this same practice can be applied with spreadsheets or pen and paper. Also, as the government provides a stimulus package relief plan, make sure you’re allocating that extra money in the most impactful areas.
- Bulk up your savings. Aim to have 3-6 months of expenses in savings. You can do this by saving on things you no longer need to spend on. With social-distancing in effect, you may see some weekly and monthly expenses dropping. For example, maybe you’re finding that you now use less gas, or that your daycare bill has dropped to zero, put as much of that extra money into savings as you can.
- Avoid unnecessary expenses. Once you create specific budgets that help you understand exactly where your money is going, and you’ve found ways to reallocate more into savings, it’s time to cut unnecessary expenses. Maybe this is in the form of a subscription that you haven’t used in a while. With subscription tracking software you can easily find which subscriptions you have, so know exactly what you’re paying, and more importantly, where you can save month-over-month. Or, perhaps, it’s a luxury item you’re accustomed to but can do without for a few months. Either way, these recurring expenses can add up fast.
- Minimize the cost of debt. Now’s a good time to get out of debt if you can. Interest rates are at a historic low—use that to your advantage. Check in with your bank or credit union about debt consolidation loan options and, if possible, roll everything into a single, low-interest loan.
- Defer payments. Use what’s working in your favor. Many organizations from banks and mortgage companies to lenders and utilities are holding off on late fees and/or deferring payments. Check in with each one of your providers to see what they’re offering. This will give you a much clearer picture of how to reallocate that spend and continue to build on your savings.
- If possible, help the economy and your community. This is a hard time for everyone, but it’s also a great opportunity to lean in and help where you can. One way of doing this is by shopping locally. If you have available funds, help local businesses that may be struggling during the economic downturn. Another way is by helping your community, whether that’s by giving blood, or supporting regional food banks. Always look to “pay it forward.”
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