For some, this is a chance to save like never before.
The personal savings rate hit a historic 33% in April, the U.S. Bureau of Economic Analysis said Friday, by far the highest level of saving since the department started tracking data in the 1960s.
With Americans largely sheltering at home, this historical spike in the savings rate — the difference between total household income and total household spending — is a “one-off,” according to Greg McBride, chief financial analyst at Bankrate.com.
“In a month with large government stimulus payments to the majority of U.S. households and widespread economic shutdowns that largely curtailed discretionary spending, the boost to income and the plunge in spending produced an outsized savings rate,” McBride said.
Nearly half of all Americans said they are saving more during the coronavirus crisis by spending less on activities, clothing and gas, according to a recent survey by MassMutual.
That’s unlikely to continue as states start to reopen but 40 million Americans are suddenly facing unemployment.
To make the most of that stockpiled cash for now, experts recommends creating an emergency fund to weather the aftermath of the economic disruption from the pandemic.
“Surplus income is a great opportunity to pad your emergency savings,” McBride said. “With 30% of U.S. households having suffered an income reduction due to the pandemic, whatever money you can hold back in one month may be the cushion you need in another month.”
Maintaining a healthy level of access to immediate cash gives you options both now and later, added Teresa Hassara, head of workplace solutions at MassMutual.
“And if you can, increase your contributions to other financial accounts, such as retirement, especially if you lowered your contributions to give you a bump in immediate emergency savings,” she said.