Cash Building in Your Bank account during COVID
If you are fortunate enough to continue to receive your paycheck during COVID 19 or to receive your usual retirement income, you may find that cash is building up in your checking account, as reported by several of our clients.
This is not a problem, but it is an opportunity.
The first opportunity is to decide how to make the most of this buildup of cash. An excellent use of idle cash is to fill up your emergency fund, especially during this time of uncertainty as we do not know what is around the next corner. Another use is to pay down any debt that you are paying interest on, like credit card balances that have a high interest rate. A third choice would be to invest in the market since there are bargains to be found there. You should only invest cash that you do not need to spend for 3 years or longer.
The second and most significant opportunity is to evaluate how this buildup of cash occurred. In most cases, it is easy to identify the cause since many retail stores have been closed and you have been Safer at Home. But looking a little further, ask yourself if you have really missed the things that you HAVE NOT BOUGHT. Retail purchases fell 8.7% in March which is by far the largest decline in the nearly 3 decades this data has been tracked. Then in April, retail purchases fell another 16.4%.
Here are some of the declines by category:
Clothing -79%
Electronics -60%
Furniture -59%
Restaurant/Bars -30%
To further describe the decline, clothing receipts for February were $22.1B and April receipts were $2.4B, over a 90% drop. Is the cash that has accumulated resulted from not making impulsive purchases while you were spending time in stores? Did you have a habit of purchasing wants rather than needs or maybe even something you did not know you wanted until you saw it.
Since salons, spa and massage parlors have been closed have you accumulated some savings from those services that you HAVE NOT BOUGHT? It is easy to get in personal care routines and now is a time you can determine what type and how much personal care is really needed to make a positive difference in your quality of life.
So, how do you use your experience to your best interest? COVID has caused most people to go cold turkey on retail therapy and they are still surviving and probably better than they would have thought. This is a great time to really evaluate your spending habits and determine which of your usual consumer habits you choose to continue.
If you need to save towards some short term goals but have found that elusive, compare what you HAVE NOT BOUGHT and the reward that goes along with those purchases compared to being able to buy that boat, take that trip or make meaningful improvements to your home and the rewards that may bring.
On another note, if you have found it difficult to contribute a sufficient amount monthly to your retirement goal, you can now evaluate the amount you have saved from what you HAVE NOT BOUGHT and look at how that could change your retirement picture. This reallocation of your income to retirement goals could actually have the greatest, positive long-term impact for you.
The evaluation of what you HAVE NOT BOUGHT is so much more significant than the amount of cash that has already built up. This evaluation can empower you to make different spending choices in the future that can be a recurring resource for you to put towards the things that can bring the most benefit to your life.
It is difficult to find benefits from COVID, but if you can come out of this experience with more control over your financial resources, that is certainly a silver lining.
-Sandra Cleveland