With people staying in, traveling less and working from home due to the coronavirus, some Americans are saving more than ever, despite of the economic havoc. Credit card delinquencies are at the lowest levels since 2017, meaning more people are paying them off on time. And the U.S. personal saving rate for September is 14.3% — down from a high of 33% in April, but still almost doubled year-over-year. On top of that, markets are seeing historic rallies, benefitting retirement accounts.
If you are able to put some extra money aside, even if it’s just a little bit ... should you save it or invest it? Here are some questions to ask before you make any major money moves.
1. Are your emergency savings fully funded?
Start with your emergency fund. It should be stocked with three to eight months’ worth of living expenses before you invest anywhere. If you still need to figure out how much money that is, calculate your essentials budget and make sure you have enough money socked away to cover those expenses, like rent or mortgage, utilities and basic groceries.
Now might be the time to reconsider how many months you want to save for. Given the current economic crisis, think objectively about your job security. It might not be a bad idea to set aside a few extra months’ worth of cash.
2. When do you need the money?
If your e-fund is in good shape, think about your goals and your time horizon - when you want to actually use the money you’re saving.
If your goals are short to medium term - think the next three to five years - you might want to save, rather than invest. Keep your money in a high-yield savings account to make sure you’re getting the maximum interest possible. In a HYSA, which you can get through credit card companies and traditional or online-only banks, you’ll typically earn between 1-2% interest - way more than the measly tenths of a percent your traditional savings account likely accrues.
You can also consider parking your cash a certificate of deposit, or CD, account. There will be better interest rates, but you’ll be charged a penalty for taking your money out early.
For long-term goals, you can invest in the stock market.
3. How much risk can you tolerate?
If you have a healthy emergency fund and you’ve thought carefully about your financial goals, consider investing. You can calculate your risk tolerance — which is your ability to withstand the idea of losing money — on a couple of factors, including your age, your time horizon and how much money you have to invest.
If you’re a novice, start by looking into mutual funds, index funds and exchange-traded funds. They can be less risky than picking individual stocks. There are plenty of books, blogs and podcasts — many free — that can help you get started.
Also, consider hiring a financial advisor to help if you have the money and desire. But don’t worry; there’s a lot you can learn on your own before you have to make that decision.
4. How much cash do you actually have?
You don’t need a ton of money to save or invest. Saving — even as little as $10 or $20 per week — is a good habit to cultivate.
The same goes for investing; you can start with just a few bucks a month. Many robo-advisers such as Wealthfront, Acorn or Ellevest have easy ways to start investing small amounts, even with just your spare change. Those apps will invest your money for you, often with a small fee.
If you want to invest but don’t have the time to learn about it, look at your retirement accounts, such as a 401(k), 403(b) or individual retirement account. If you increase your contributions there, you’ll be investing too.
If you don’t have a lot of cash on hand, that’s OK. This is a hard time for a lot of us. But saving just a little is better than nothing at all. When you can move it to a high-yield savings account or your investment portfolio, it will continue to grow.
Get more financial tips and advice from Stephanie Ruhle and the Wealth Health team.