You have a budget…ish, but if you come up short at the end of the month, you’ve always had your credit card to rely on.
And yes, it seems there’s always an expense that’s left you reaching for the plastic, but in the past few months — since you’ve been stuck inside — you haven’t had to put as much on the card.
That’s been the experience of many Americans: Outstanding consumer credit was down 28.6% in March and nearly 65% April, according to the Federal Reserve.
Unfortunately, the belt tightening might be due to a job loss, but many of us simply found more ways to be frugal as we sat at home.
As states ease restrictions and places begin to reopen, you might be feeling the urge to pull out the plastic and treat yourself.
Before you start your spending spree, stop and read how to hold onto those small savings — and how those tiny amounts could make a big difference. And if you still want a fabulous treat when you’re finished, you have my permission. (But not really.)
4 Steps to Use Small Savings So They Don’t Disappear
If you’ve been spending less on your credit card, first, good on you.
Amid rising unemployment, hikes in food prices and retail therapy, it would be easy enough to charge through these months toward mounting debt.
So if you’ve been able to put a little more money aside, now is the time to take action — before life returns to a more normal pace, according to Michael G. Thomas Jr., an Accredited Financial Counselor with a Ph.D. in Financial Planning from the University of Georgia.
He teaches a course on personal finance at the university, so we asked him for a quick lesson on what to do with small savings. Here are the steps he recommends.
1. Set Your Goal (Don’t Make It “Getting Out of Debt”)
If you’re still facing a credit card balance despite holding back on your spending these past few months, there are plenty of methods to start using that money to dig out of debt — from an avalanche to a snowball and even down to a snowflake.
But your goal shouldn’t simply be to just get out of debt, especially if it leaves you with no cash reserves for an emergency.
“Sometimes we have this laser focus on debt that then causes us to not plan beyond that,” Thomas said. “You can be out of debt and still be broke.”
If possible, avoid screen time as you contemplate your goal. Social media and advertising can not only be distracting, it can influence your decision-making process without you even realizing it.
Instead, take a few days to consciously decide what it is you value most and set that as your goal — whether it’s saving for a house, donating to your community or planning a vacation. Having that concrete goal can help you resist temptation as you return to “normal” life.
“If I’m no longer prompted by fear or anxiety… then is that goal that you previously set going to be strong enough?” he asked.
2. Open a Savings Account
Ready to save but don’t know where to start?
Given the current economic instability, Thomas recommended sticking with a savings account since it offers the easiest access to your money in case your financial situation takes a sudden turn.
A certificate of deposit or money market account may offer slightly higher interest rates, but they leave you restricted on how often you can access your money without incurring a penalty.
Thomas also recommended opening a savings account that’s not at your current bank. By doing so, you can shop for a better interest rate. You’ll also create an additional psychological barrier to help you delineate between your checking and savings accounts.
“There are so many individuals who have a savings account that serves as a default banking account when they go over,” Thomas said. “That money being out of sight, out of mind is incredibly important.”
If you need help finding a secure, convenient place to bank, we’ve compiled a list of the best online savings accounts.
3. Outsmart Yourself
If you didn’t go to the movies last month, you might not have even realized you put $30 less on the credit card. But if you avoided 10 expenses that usually cost $30 each, you probably noticed the $300 difference.
By the same token, you can automate tiny savings without feeling a financial impact. And that might be a smarter way to save.
“People generally discount the impact of small numbers, so it’s actually easier to get people to say, I’ll set aside $20 or $35 each month because they think that’s not a whole lot of money,” Thomas said.
Keeping those savings in the separate account — and out of sight — will help you protect that amount… from yourself.
If you’ve been able to pay off debt, assessing your tendency to return to bad habits can help you avoid sinking back into debt, aka debt recidivism.
“We start thinking: That’s $500 — we don’t think about that as a lot of $20 amounts put away over time,” Thomas said. Realizing how much we’ve saved “triggers our brain to start romanticizing, ‘Oh. What can I do with that $500?’”
If that sounds familiar, then creating ways to trick yourself into forgetting about the money is essential for avoiding what Thomas described as the What-the-Heck Effect.
“The What-the-Heck effect is… I’m just going to enjoy life right now — I’ll worry about everything later,” he said. “You could actually spend away three months of savings.”
Whether your solution is opening another “hidden” account, removing your credit card number from online shopping accounts or creating daily reminders of your goal, the key is recognizing your own bad habits and creating a system based on them.
“The idea is to work around ourselves if we don’t have the discipline to be consistent,” he said.
4. Don’t Wait for Perfection
If you’re waiting until you know exactly how to invest, where to save and how to manage your money, that money will be spent by the time you come up with the perfect plan.
“When it comes to financial wellbeing, you don’t have to be perfect,” said Thomas. “So many people are in their head, but they stay in that space of contemplation.”
By taking even a small step, like writing down your goal, you can handle the questions and missteps as they arise. Don’t wait another day.
Tiffany Wendeln Connors is a staff writer/editor at Codetic. Read her bio and other work here, then catch her on Twitter @TiffanyWendeln.