Five Savings Habits to Keep Once the Recession is Over
June 23, 2010
| MoneyRates.com Senior Financial Analyst, CFA
It's a curious pattern. In four out of the last five recessions, including the one that began at the end of 2007, average American debt burdens have actually gotten smaller. Unfortunately, Americans have more than made up for it by taking on more debt during economic expansions.
Why Save When Times Are Good?
This pattern may seem counterintuitive. Why should savings rates increase when money is harder to come by--then decrease once more money comes in?
In part, the explanation is that people are more optimistic during economic expansions, and thus more willing to borrow. Another factor is the fact that credit is more freely available when the economy is strong.
Whatever the explanation, this isn't necessarily a healthy financial pattern; many people may be better off increasing their personal savings rates when times are good. This gives more of a cushion going into the inevitable lean times and can help continue progress towards long-term savings needs like retirement.
Good Savings Habits
As the economy once again transitions from recession to expansion, here are five ways you can carry over your improved savings habits.
- Keep life simple. If the recession forced you to downgrade your cable TV or cell phone service plans, consider keeping them that way. You may find that you've adapted to a simpler life, and once you are no longer strapped for cash, you can deposit the extra money in your savings account rather than pay more to the cable and telephone companies.
- Use home cooking skills. People tend to eat out less during a recession, so now that you've brushed up on your cooking skills, make it a habit to enjoy romantic suppers with your spouse or small dinner parties with close friends in the calm and quiet of your home, rather than in the noisy bustle of some restaurant. You'll find that meals end on a happier note when no one is bringing a check around--and you just might be surprised what everyone in the family can create in the kitchen once you try.
- Bank any refinance savings. Mortgage costs forced many people to refinance, but the bright side is that record-low mortgage rates made this a once-in-a-lifetime opportunity. As your finances recover, consider saving the difference between your new and old mortgage payments--or even paying down your mortgage faster than planned.
- Keep replacement cycles long. In a recession, people find they can live longer without a new car, television, or appliances. Even once the recession is over, there's no reason to get back on the treadmill of replacing something every time a new model or gadget comes out. Hold on to what you have a little longer, secure in the knowledge that there will be an even more advanced replacement available in a year or two.
- Bank your pay raises. During a recession, the closest thing to a raise may be keeping your job, but as the economy recovers, you should start to see your income go back up. The most painless form of saving is to put a chunk of this new income directly into a savings or money market account, before it has a chance to inflate your lifestyle.
Besides helping you build up savings over the long haul, there is one more benefit to saving more during an economic recovery. Savings account interest rates may be higher in expansions than in recessions, so you'll find a greater reward for your good habits.
