How to save more money even if your income is down

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  • Americans are either saving more during the pandemic, or struggling to make ends meet. Financial planners say that if you’re in a position to save, now is a great opportunity.
  • To start, examine your income and spending and make a budget. Then, tighten your budget — cut back wherever you can.
  • Next, start saving whatever you can and automate that amount every month. It doesn’t matter how much you put away as long as you’re developing a savings habit.
  • If you can find ways to increase your income or save money through your employer (such as a Flexible Spending Account), jump on those opportunities.
  • Check out Vanguard Personal Advisor Services® to get the investment advice you need to help build the life you want »

There are two money-saving experiences happening in the US right now. Some are having an easier time saving, with less dining-out expenditures, not commuting, and reducing their discretionary spending in general. Others have been struggling to save thanks to layoffs, reduced hours, furlough, or other reduced-income scenarios. Regardless of your situation, if you want to save money but aren’t sure how, financial planners can help.

Before jumping into tips to help you save more, Corbin Blackwell, a financial planner with Betterment, had this very important message to share if you’re struggling to pay bills due to the pandemic: “It’s OK to put savings on the back burner. Don’t feel guilty for trying to just pay your bills; you might not be in the savings place right now. Some people read articles about how much you need to be saving and that might not be feasible for you. Give yourself a break and do the best you can.”

If you are looking to save, here’s some advice.

Know your budget

First and foremost, Blackwell stresses the importance of knowing where your money is going. “If you have more flexibility in your budget, know what you spend and figure out where you can cut back. This is a great time to take inventory and see what expenses you can cut out.”

Mark Reyes, a financial planner with Albert, recommends following the 15-20-50 rule to set up your budget: 15% of your take-home pay goes into savings, 20% goes to non-essentials, and 50% goes to essentials. 

Tighten your budget

“Like all budgets, the key to building wealth is to spend less than you earn. For those impacted by reduced income, revisit your income to make sure you can make your budget work,” says Reyes. 

How can you reduce expenses when you’re not sure what else to cut? Reyes encourages negotiating: “Negotiate when you can, including your cell phone and cable bills. If you’re on the phone with them long enough they likely will lower your bill. If you have time, this tactic is definitely worth a try.”

Automate your savings

After you’ve cut back expenses and freed up some cash, Blackwell suggests starting to save a small amount. “You don’t have to be saving a couple hundred bucks to be saving. If you only have $100, you can still put that away and automate that savings. That small savings goes out and keeps growing towards your goal,” he says. 

Says Reyes, “Automating your savings is a standard way to build up an emergency fund and put it on autopilot. If you have a stable income right now, it will take the stress away from having to make those kinds of decisions.”

Increase your income

Reyes’ advice if you can’t make ends meet? “Consider taking up a side gig, such as selling things online [or] walking dogs on Wag,” he says. “But before looking at side gigs, take a look at your savings and determine what your runway is. If it’s only going to be a three-month furlough and you have three months in savings, then you can make decisions from there. And vice versa — if you only have one month of savings, then you would need to look for ways to cut down expenses or increase your income.”

Save money through your employer

If you’re still working, Reyes suggests looking into programs offered by your employer that allow you to save, such as a Flexible Spending Account. With an FSA, you’re saving money for any health expenses that might come up down the road. “That way, you have pre-tax dollars going towards medical expenses, which will save you cash over the course of the year,” says Reyes.

So, how much should you save?

This is a common question, and one that has had more importance during pandemic times. Reyes recommends saving 10% of your income regardless, but typically recommends 20% if you can afford it. In regards to emergency funds, Reyes recommends a bare minimum of three months for essential spending and bills. Due to COVID-19, however, six to 12 months of savings is more ideal.

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