Melissa Bell: Hi, I'm Melissa Bell Publisher of Vox Media. Welcome to Money Talks: Home Habits, powered by Bank of America. This is a virtual explainer event, centered around the new meaning of home and how its purpose has suddenly shifted. Today, we'll be focusing on saving when home and how to manage and prioritize savings during such an uncertain time.
People spending more time at home means changing spending and saving habits. But what's the proper way to save, and what are we [00:00:30] saving for? For some, the transition to spending more time at home comes with automatic savings. The US personal savings rate jumped to 33% in April, the highest ever recorded. Still, in a June 2020 survey, 23% of Americans reported that a lack of emergency savings was their biggest financial regret. So how can people put any new found savings to good while still at home?
An emergency fund should be the foundation of any savings plan. Emergency funds should cover six [00:01:00] to nine months of regular household expenses. Saving, however, may not come as easily for those whose incomes have been impacted. That's why it's even more important to set aside time to go through your monthly expenses and identify any that can be reduced. Whether you've found unexpected savings in recent months, or have had to cut back, take the time to prepare for the future by reevaluating your savings priorities today.
I'm joined by Tonya Rapley, a financial educator and founder of My Fab Finance, [00:01:30] Tonya. It's great to have you here today.
Tonya Rapley: It's wonderful to be here.
Melissa Bell: One question that is really top of mind for me is centered around the folks who have been impacted in a disproportionate way because of the coronavirus. What financial advice do you have for them?
Tonya Rapley: Yeah. Melissa, thank you for asking that question, because as a financial educator and working in this field, I have seen, and I've worked with people who even before coronavirus were financially vulnerable. And what we are finding are [00:02:00] people, particularly people of color and people who might be deemed essential workers who are working in, whether it is required fields, or essential fields such as in the grocery store, farming, et cetera, things that really help ensure that our economy stays floating and that our needs are met, are vulnerable as well. And they don't often have those protections, but they haven't had them.
And that's one of the things that I'm hoping that this kind of starts a conversation of what it looks like to [00:02:30] bring people up to equally, before we even have something like the coronavirus start. And so when working with clients and helping people kind of navigate, "Okay, what do I do? I'm already financially vulnerable. What can I do to kind of alleviate some of this?" If anything, the first thing is we got to comb through those expenses. What was helping you, or what worked before coronavirus might not work now. So what you could afford then, you might not be able to afford now [00:03:00] because maybe your hours have been cut back, or maybe now you have additional health cost, or maybe you're responsible for your childcare and so forth. So you aren't able to go into your office, or you're not able to do things you used to do to bring in income.
And so we need to cut back on those expenses and we can do that by looking at our budget, looking at what's going out of our household every single month. And then cutting back on the things that aren't necessary. During this time we really want to be focusing on those essential items. The next [00:03:30] thing is, I would suggest that people take advantage of help, or assistance that's available to them. I know that sometimes we might not want to or feel like, "I got this." But if there's any time in history where there's more help available, it is right now. So there are resources available. I know here in Los Angeles where I live, they have a rental assistance program. They're rolling out when everything first started happening. They were forgiving student loan payments for a certain amount of time and mortgage payments [00:04:00] for a certain amount of time. A lot of utility companies have been understanding and are working with individuals, or working with their customers.
So look to see what help is available on that side. But then also, if you need any social services, or anything of that nature, find out what you need to do to make sure that you're getting groceries and so forth. Look into grocery co-ops, or food pantries nearby and so forth, so that you can make up some of that difference in what you were spending in groceries. And maybe you can reallocate the money from your budget to something [00:04:30] else. And then the last thing I really want people to do is really think about stabilizing and what it looks like to stabilize your financial foundation, because that's important. And I know that people might be in crisis mode and like, "I just can't figure out how to get to XYZ point."
You're not alone. There's a lot of people who are trying to figure out how to get to XYZ point, especially when the point has been changed as it has. I don't think any of us expected for 2020 to look this way and to have this experience this year. [00:05:00] So alter your plans. It's okay to alter your plans and change your expectations of what was expected for you this year. And just realize that you're not alone. I think that, especially for people who might feel like they are vulnerable, or feel even more vulnerable, you're not alone. There are services there to help you and we'll get through this.
Melissa Bell: Thanks, Tonya. I think that's a great point. One thing that I think you mentioned at the very beginning is how a lot of these issues predate [00:05:30] coronavirus, and this moment is perhaps exacerbating them, but also revealing them. Now, I would love to bring on some guests who are excited to ask you some questions. Coreen, welcome to today's discussion. I'm looking forward to what you and Tonya have to talk about.
Coreen: Hi, Tonya. My question is, like a lot of other people, I've been saving more money than usual in the past few months. I'm not going out, shopping as much. I'm not eating out as much and spending money socializing. And I'm wondering if [00:06:00] for those reasons it's a good time to spend a little bit more money than I might usually on large purchases. Despite the fact that I still have debt that I'm working towards paying off. And I'm wondering if there's a balance of how much more money I can spend on myself and go into paying off my debt.
Tonya Rapley: Oh, that’s well, that's good news that you are saving more money. I think that as we've spoken to others and when I'm talking to other [00:06:30] clients I work with, that's been a positive byproduct of this entire experience. But what kind of large purchases are we thinking? What do you have in mind?
Coreen: I think there's two categories. One is just splurging a little bit more on clothes, for example. Every other month usually I'll make an online purchase and maybe I'm more prone now to spend a hundred dollars more than I would have before. And then the other side is [00:07:00] just, for example, I'm moving apartments next month. And I have my eye on a few furniture pieces that probably I wouldn't have considered before. But now I'm like, "Okay, well I haven't spent so much money the last few months. Maybe it's okay to buy these now."
Tonya Rapley: Okay. All right. So furniture and additional clothes. Okay. Furniture makes sense to me, but clothes, I'm like, where are you going? Take me with you. Where are you going? Because I know I'm not going any places, but so just think about this, so [00:07:30] there's needs and there are wants. So when it comes down to our needs, that's shelter, that's food, that's clothing and so forth. But then there's wants and these things probably do fall into the categories of wants. You have an apartment, you're thinking about, "How am I going to furnish that apartment?"
And we have clothes, it's like, "Well, maybe I want a few different pieces of clothing". So these are wants and there's nothing wrong with wants. But when we're thinking about moving into priority, making wants a priority, then we have to look at how are we doing financially? So dialing [00:08:00] back to, okay, moving into this apartment, do you have enough money set aside just in case to cover that rent. Because what we don't want to happen is that you spend quite a bit of money on furnishing this apartment, we haven't put money aside in saving for this apartment. And so something happens and now we've got to sell the furniture and we have to move out, because we haven't been prioritizing putting money aside to save for that.
So there's nothing wrong with spending money on your wants, and there's nothing wrong with making it a priority, as long as you have already previously prioritize creating that emergency fund and that savings [00:08:30] cushion, so that if things were to happen, you'd still be able to pay for those basic needs. How are you doing on that? Have you been able to save to create that cushion?
Coreen: I would say have that cushion, but like everyone else, it doesn't hurt to always save more money. I always want to see that number go up. So I'm looking for what that balance could look like.
Tonya Rapley: Yeah, definitely. And are you currently working?
Coreen: I am. And I'm very lucky to have job security [00:09:00] for the near future, at least. I see my income continue to come in throughout coronavirus.
Tonya Rapley: Okay. Well that is good news. And so you're in a pretty good position. The thing with furniture, it doesn't mean that you're going to have to buy the most expensive furniture in the store. It means that we're going to shop around for a good deal, and make sure we're getting the best deal. And so maybe there's still a way to save on that and still put money aside in savings. It doesn't mean we're going to blow everything out the water.
So keep that in mind as you're looking at your wants and so forth. [00:09:30] There's this theory, whereas in certain major life experiences, or purchases lead to more expenses, such as moving into apartment, or moving to a specific side of town. Now you feel like you have to have certain things in that apartment, or a certain lifestyle, or reflected lifestyle to participate in living on that side of town. Or, maybe it's certain clothes, and certain wardrobe. So we just have to be mindful of that, what we call lifestyle creep and those additional expenses creeping in.
But I think that you sound like you're pretty solid on that. [00:10:00] So as far as your other financial goals, before we think about splurging and taking care of wants, how are you on your other financial goals? So do you mind sharing maybe one short term financial goal and one longterm financial goal that you have?
Coreen: Sure, I guess, well, they all relate to bills and loans and things of that nature, and debt. I do have a lot of debt and I also know that for example, I accumulated a bunch of medical debt this past year, and I know I [00:10:30] have a lot more work to get done in the future. So short term, just paying my credit card bill and making sure I can get to paying it off monthly, or quicker than I have been in my history. And then longer term is just to pay off my other medical. I have three different loan servicers for my educational loan. So chipping away at all of those.
Tonya Rapley: Okay. All right. Yeah. And [00:11:00] it sounds like quite a few people are dealing with. And so when we think about splurging on our wants and so forth, it is also how am I doing on my financial goals? And if we're meeting all of our markers for our financial goals, and I think that since you have like a few debt related goals, debt elimination related goals, let's create those different markers where we say, "Okay, I want to pay this bill down by 25%." Or, "I want to pay it down to this amount, then the next amount, then the next amount." So that we know, okay, I'm hitting my financial [00:11:30] goal mile markers, at least now I feel more comfortable spending on my wants.
But if you don't break down your larger financial goals into smaller goals, then it kind of can feel like, what am I even doing this for? So I want you to think about what the smaller goals are and those larger goals. So maybe it is, "All right, I have a medical bill for a thousand dollars. I want to pay off 250 of that." So I'm left with 750. Or, "I want to pay off half of that." That can be a micro goal within your larger goal. And once we reach that micro [00:12:00] goal, it's like, "Okay, now I can treat myself a little." But we want to make sure that we're making progress on our goals before really splurging on those wants. So does that make sense? Does that feel realistic and comfortable for you?
Coreen: It definitely does. And I think I have a followup question then, which is, because all of my loans, I'm paying them all on time and in the increments that they has given me, making the minimum payments. So would this be a good time to just throw money into those consciously of course, [00:12:30] but conscientiously, not too much, but throw that money I would have spent on clothes, the extra hundred bucks into loans. Is that a good idea?
Tonya Rapley: Yeah. If you can amp it up, like I said, now is the time to do it. Most of us aren't going any places, or going anywhere and so forth. So now is the time that you could really amp it up and put that money towards paying more than the minimum if possible.
I understand that dealing with creditors and so forth, it can seem a little [00:13:00] daunting, or especially if you haven't done it before, or aren't used to it. So one of the things I actually recommend is go to bettermoneyhabits.com/heretohelp. And they actually have a few resources there that can help you prepare for these conversations, as well as help ensure that you're more comfortable having them and more likely to get an outcome that works in your favor. So you don't have to go into this alone.
I think if we have money to spend on clothes and we have money, and the clothes that we don't need. There are certain things it's like, "Okay, I need to transition my wardrobe to a winter wardrobe." Or, "I need [00:13:30] to do this for workplace attire, or safety precautions." but if it's not something that you need, then I would say you just use it to get ahead when it comes to your debt elimination.
And then here's the other thing to think about when it comes to purchases, I think a lot of times we look at "I'm spending XYZ amount of money on this, so I'm spending a hundred dollars on clothes", but it's like, how much of your life did you put aside to earning that? How long does it take you to make a a hundred dollars? And is it worth like, do you want to use it towards your financial goals, or do [00:14:00] you want to use it towards clothes, which is essentially fulfilling someone else's goal? So think about the money you spend that way too. It's not just money you spent, it's hours of your life that you put towards bringing in that money. So you want that money to work best for you.
Coreen: Thank you. It seems so simple, but it actually feels more impactful coming from you with the full rounded perspective. So I really appreciate that.
Tonya Rapley: You're welcome. And I'm really excited that you're thinking about things like this. I'm really excited that you're getting your own place and you're moving in and hopefully [00:14:30] you find a few items in there to help furnish it inexpensively. So thank you for having such great questions and I'm excited for you.
Melissa Bell: And next up, we're here with Jen from New York. Take it away, Jen.
Jen: Hi Tonya. My name is Jen as introduced. [crosstalk 00:14:48].
Tonya Rapley: Hi.
Jen: So I'm a baker and I laid off during the coronavirus. And because the restaurant industry is so in flux at this moment and it's really uncertain on what kind [00:15:00] of jobs are available, I'm looking to kind of pivot into new direction, whether that be something related to my field or not. And my question is how can I plan to save money enough to focus on looking towards a new career while this is going on?
Tonya Rapley: Yeah, Jen, the restaurant industry has been hit really hard, but as a baker, I'm curious, what's your favorite thing [00:15:30] to bake?
Jen: I love baking cookies and I'm really into decorating cakes. I would love to pivot into that in the future, but I have a tiny apartment and I really can't put it all in one go in that fridge.
Tonya Rapley: I understand. You need commercial kitchens and all these other things like that too, but I love cookies, so if I lived in New York, I would definitely be one of your, I would buy cookies from you right now, because I'm [00:16:00] not the best baker. But I think that you're wise to think about your different options. If you really love baking, I think that there are certain ways that you can continue to grow in that career path.
But thinking about saving, I always say savings is essential regardless of what you have going on. So unless you just inherited a large amount of money, or unless you've been saving, and so you're financially comfortable. But if you're not in any of those positions, which most people aren't, I would [00:16:30] definitely recommend that we focus on, okay, so what are different ways that we can leverage the skillset right now to add to our savings, so that we have that three to six month cushion that makes us feel comfortable.
Outside of coronavirus, I would recommend that someone has three to six months and savings. Now, it's like if you have the ability, then six to 12 months of savings. Because one of the things about economic downturns is we don't necessarily know how long they could last. So this could be something that's over at the end of this year. This could be something that is [00:17:00] ongoing until the next three to four years. And so we want to be as financially prepared as possible.
Jen: In the beginning when I was laid off, I applied for unemployment. So I've been receiving my weekly and then the additional payment on top of that. And again, I've been reaching out to certain friends who want any pastries and offering them on a friend to friend basis, or a lower rate than I would probably charge for something [00:17:30] normally. And so it's been a slow climb in finances, but I make ends meet with the unemployment and just supplementing myself a little bit, but I don't have anything part time going on. I'm not doing any side gigs that require me to be around a lot of people. So it's just more on the need basis.
Tonya Rapley: [00:18:00] So we need to think about other ways that we can bring in that revenue, so that you can begin to pivot and transition. And so we're thinking about it, it's like, "Okay, what are different things that I can do?" I think that now is the opportunity maybe for you to start growing your online community, because there are people who might not live near you, who are willing to pay for access to some of the knowledge you have, or show up for, they have time they're at home. They're like, "Hey, I'm going to bake a cake with Jen today."
And so you could say, " [00:18:30] I'm going to show up at this time and I'll be baking a cake on Instagram live, get your ingredients. And you can do it along with me." Or, you can start to maybe deliver some of these ingredients to people, or help them decide, "This is exactly what I need." So I think one of the appeals to a lot of those delivery food boxes is that they premeasured the contents for you. But I haven't seen a dessert one. And so maybe that's small curated thing that you could offer, just so that when you bring in that money, you can put it into your savings account.
[00:19:00] So it is important to think about, "Okay, I'm bringing in this extra money, I'm putting it directly into my savings account instead of using it on something that's non-essential, or not important", because that's going to help you create that transition fund. How do you feel about that?
Jen: Yeah. So focus more on saving and longterm than just taking the money that I've earned right away and spending it right back.
Tonya Rapley: Yeah. Yeah. Especially if we're thinking about a transition and I'm curious, what kind of transition are you looking at? I know that you said maybe [00:19:30] in your industry, but what other options are you looking at?
Jen: Well, I like the ins and outs of publishing. If I've ever been able to put a cookbook together.
Tonya Rapley: It can seem arduous, especially given that finances might already be constrained. There are so many resources online. One of my favorites is Canva, where you can publish your own PDFs and so forth. And they have all these nice images and you don't have to be a design expert in order to create your own book, or create your own [00:20:00] cookbook, or whatever you may want to create. And then you can upload that. And the great thing about creating something is that you'll have passive income.
And so I don't think enough people also talk about passive income when it comes to your saving strategy and your longterm goals. But it is looking for ways that are active. So baking a cake is active income. It requires you to go out and get the ingredients, bake it, sell it to someone, arrange the delivery of it, or whatever it may be. Whereas in passive income, it's like, okay, maybe you can put your recipes together. Maybe [00:20:30] there's this awesome cookie recipe that you developed and you want to sell it, and a few others that you want to sell. You can upload those online and you could still be selling those five years down the line, even after everything has settled. You can still bring in that passive revenue from it. You can make it so that your passive revenue goes automatically into your savings account.
So it's being deposited into that savings account. So you're still automatically building your savings, but passively. [00:21:00] So think about that. There are different ways that you can build it. It doesn't necessarily have to just be active. But I'm looking forward to what you come up with. And I wish that I could taste some of your cookies, because I am a cookie monster.
Jen: Okay, well, we'll stay in touch. Anytime you want something.
Melissa Bell: Tonya, thank you so much for this great discussion. You had some fantastic advice. I really appreciate it. And a big thanks to our guests who shared so much about their personal situations. Thank you again to everyone for watching [00:21:30] Money Talks: Home Habits, powered by Bank of America. We hope this event was able to provide some guidance and help you prepare for a better financial future.
Information is as of 8/6/2020.
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