Key Takeaways
- One of the economic outcomes of the coronavirus is that many people found they have extra cash.
- Don’t just spend that extra money – be strategic about it!
- There are three things you’ll want to prioritize to make sure you’re making the biggest impact on your financial situation.
The impact of the coronavirus on our country, and the entire world, has been immense and far-reaching. One of the effects of the virus, which may have surprised you, was that it resulted in a lot of cash for a number of people. The CARES Act was passed in late March, and then stimulus checks were mailed out as a result. Then there was the Payroll Protection Program (PPP), which helped small businesses.
In addition to these measures, individuals were saving more – a lot more. In fact, for April 2020, the savings rate was 30%! Prior to this, the rate was 8% to 10%, so this was a huge difference. With people finding themselves at home, not going on vacation, not eating out or going to movies, etc., they were really saving their money. Turns out, working on puzzles and baking bread are cost savers!
Now, if you’ve found that you have some extra cash these days, what’s the best way to leverage it? Well, there are three areas you’ll want to focus on.
First, if you don’t have an emergency fund, use the money to start one. We know that 50% of Americans don’t have an emergency fund, but it’s crucial to have one in place. Put at least a couple of months’ worth of expenses aside in a separate account that you can’t readily access. You’ll be glad that it’s there for when you’re hit with an unexpected cost down the road.
Second, if you have credit card debt, pay it down. Generally, credit card interest rates are 14%, so if you can pay your credit card debt down, it’ll make a huge difference on your monthly payments. If you have enough, pay it off altogether.
Finally, there’s student debt. Right now, in 2020, the student debt balance in the U.S. is an astronomical $1.6 trillion. If you have student debt, especially if they’re private loans or higher interest loans in the 6% – 9% range, pay them down. Otherwise, you’re on a path to continue paying for more than ten years, and that’s a killer. The average person currently pays $393 per month for student loans – that’s a car payment for ten years! By paying that down, you’ll really increase your income.
Out of bad times, occasionally good times can happen. In this case, you may have some extra money and be able to take advantage of these three impactful ways to improve your cash flow. Until next time, enjoy.
