By Julia Carpenter
Aug. 29, 2020
Saving feels good. Watching the amount in the rainy-day fund, savings jar or retirement account grow can encourage savers to stick with healthy financial habits.
The coronavirus pandemic and the resulting economic downturn have forced many to put those goals on hold. However, maintaining a savings mind-set could help keep your focus on the long-term.
"Before you can be future-oriented, you have to first take care of your short-term needs," said Abigail Sussman, an associate professor at the University of Chicago Booth School of Business. "So this isn't an issue of 'Stop buying that extra cup of coffee at Starbucks,' which is a commonly-touted savings strategy. That isn't people's main problem."
But pausing saving doesn't have to mean losing heart. In the midst of economic turmoil, here are some tips on how to pivot without giving up on your goals altogether.
Don't slam the brakes.
Stopping saving altogether usually feels worse than gradually decreasing the amount you contribute toward a goal, said Jennifer Lane, certified financial planner and founder of Compass Planning Associates in Boston. Instead of just suspending all contributions to your savings, she suggests lightening up the pressure instead.
"It might be that you reduce the retirement contribution down to the employer match, or you reduce the monthly savings of x amount in half or third or even down to 25% of what you're saving, or even just $10 or $5 a month," she said. "You're just adjusting it rather than stopping it."
In her experience, she said this flow allows people to still feel that they are making inroads toward a financial goal. For someone who identifies as a saver and takes pride in that identity, keeping momentum toward that goal—even small amounts, as Ms. Lane suggested—can prevent people from giving up and feeling down.
Figure out your motives.
Similarly, research from Prof. Sussman shows that many people continue to hold on to their savings, even as they take on debt. For some, it may be for a psychological purpose.
"You can imagine in some sense that people need to keep some money in these savings goals to keep thinking of themselves as financially responsible. And that might be very important, even if that means it might forgo some of the economic efficiencies in the long-term," said Prof. Sussman.
To preserve that identity, keep your financial dreams and milestones in mind, even if they seem more out-of-reach than ever before. Ultimately, dropping them will only demotivate you from other, smaller tasks.
"Having higher-level savings goals in mind becomes really important in terms of keeping your eye on 'How can I continue to be really making financially-wise decisions and financially-efficient decisions, even if I'm taking on debt?'" Prof. Sussman said.
Maximize what you have.
If you're pulling from your savings account or depleting your emergency fund to handle unexpected costs or loss of income, make sure whatever you have next is working extra hard.
Consider moving your savings to a high-yield savings account. Keep in mind that while interest rates have dropped in response to the pandemic, it is still better than a conventional savings account.
It can be hard to deplete savings you worked so hard to build. Instead of feeling negative, give yourself the credit for having done that hard work, said Fred Hubler, founder of Creative Capital Wealth Management Group, a Pennsylvania financial advisory firm. Celebrating that as a past win helps bring some positivity to a difficult time, he said.
"That is not something to be ashamed of," he said. "That should be a badge of honor. Think 'I saved money, and I had to hit it because of this once-in-a-lifetime event.'"
Extend your horizon.
Staying positive in the midst of delaying a long-planned goal can be difficult, Ms. Lane acknowledges. But she said she often reviews clients' financial plans and histories and finds that stopping saving or delaying retirement, homeownership or some other milestone for a year doesn't ultimately hurt these people and their financial health. Research shows making a plan to catch up is key to recovering those savings.
For now, she recommends adjusting any big dates or timelines you already had planned before the pandemic.
"By extending the horizon or seeing beyond the 'what now?' you can say 'On Sept. 1, I'll start saving again' or 'by the end of the year, I'll start putting money in the retirement accounts again,'" she said. "That will get you out of the 'now,' and it will get you out of your head."
She recommends setting a calendar date for when you can think about resuming the goal. Moving that time frame further down the road alleviates some of the immediate pressure to catch up or make up for lost savings, but it also allows you to stay positive about the future.
Write to Julia Carpenter at Julia.Carpenter@wsj.com
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