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If the presence of COVID-19 was a growth opportunity for your finances, do not feel guilty and better try to make the most of all your saved money.
It’s time to talk about the good news. Yes, it is true that the COVID-19 pandemic left a lot of financial disaster in its wake. But there is also a reality that should not be set aside just to see the tragedy: for other people, even if they are few, it was the opportunity they wanted to grow their savings.
According to a SoFi survey of 1,000 consumers, 1 in 4 Americans have more than 10 months saved on living expenses. Another quarter claims to have the equivalent of between four and six months of expenses in savings. In short, almost half of the population, which is no small thing, have the savings recommended to create their own emergency fund.
But if you’ve saved enough to have a healthy emergency fund, you should go further. That is why we have some recommendations to use more intelligently all the money that you continue to accumulate.
1. Pay off debts
If you have debts, it is time to seek to settle them. Prioritize any outstanding balances you have on high-interest credit cards or personal loans.
A comparative data of the interests for and against. While banks pay a minimum interest of around 0.07% on average on savings accounts, credit cards carry an average interest rate of 15.91%. It is less what you can gain than what you lose if you do not settle your debts soon.
2. Increase your retirement contributions
Just as you’ve saved enough to have a good emergency fund, now is your big chance to increase your retirement contributions, whether in 401(k) or IRA accounts. This is one of the best things you could do with your leftover money, as every dollar you earn will multiply over the years for a more dignified retirement.
401(k) accounts tend to have more attractive benefits than IRA accounts, but the important thing is that you contribute towards your retirement. For example, while the income limits for an IRA is $6,000 during 2021, the maximum limit for a 401(k) is $19,500, which gives you more opportunity for growth.
3. Save for other financial goals
Buying a car or a house requires a high initial payment and to achieve it you need good savings. Even if what you want is a vacation, take advantage of your extra money for other types of goals.
It is also valid to have smaller goals such as a luxurious dinner, brand new clothes or any other type of purchase, always with the awareness that it is better to save to have it than to go into debt to buy it.
The investment should be in the first place when you have extra money, although due to the temporary issue, not everyone wants to assume it. But what is a reality is that if you want to grow your money, it is best to invest it. That is why we propose that if you have managed to obtain the above points, paid your debts, contribute to your retirement (which is already investing) and have even reached short-term goals, you should open an investment account simultaneously with your retirement so that you have more funds in the future.
You can open a brokerage account, approach a financial advisor or start your own business. No matter what you decide, the important thing is that you start in the world of investment.