The COVID-19 pandemic is changing the way a lot of people manage their money. Some are curbing their spending in a very meaningful way. Others are diverting money away from their retirement plans and are instead boosting their emergency funds so they have more near-term cash to access in a pinch.
Having extra cash on hand is a smart thing to do during a recession, so it's not surprising that 29% of Americans say they're now holding more cash or liquid assets than they were before the COVID-19 crisis, according to a recent survey by Personal Capital. And if your income is holding steady in the course of the pandemic, it pays to consider boosting your immediate cash reserves, too.
Why cash is crucial during a recession
U.S. unemployment levels have skyrocketed during the COVID-19 pandemic, and with jobless claims rising over the past two weeks, it's clear that things aren't on the cusp of improving. And that's just one reason why it pays to have extra cash on hand in the coming months.
If you lose your job, it may take a while to find a new one given the current state of the economy. And if your unemployment benefits don't provide enough income for you to keep up with your bills, then you'll need savings to tide yourself over for what could be a number of months.
Even if you don't lose your job completely, you may find that your income takes a large hit during the ongoing recession. If you're a freelance tech consultant, for example, you may find that fewer clients are calling, what with businesses rethinking their budgets and cutting back on spending as well. Having extra money in the bank could therefore be a lifeline for the remainder of 2020, and well into 2021.
But that's not the only reason it pays to hoard some cash right now. Doing so will also allow you to take advantage of investment opportunities as they arise.
Back in March, when COVID-19 first took hold, the stock market reacted by plunging into bear market territory. That was bad news for investors in one regard, but it also provided an opportunity for investors with accessible cash to buy up quality stocks at a discount. There's a good chance the stock market will take another hit in the coming months as the economic crisis worsens, unemployment levels rise, and many states struggle to get the pandemic under control, so if you make a point to have cash on hand, it could help you load up your portfolio on the cheap.
How much cash should you have at your disposal? For emergency purposes, enough to pay six months' worth of bills is a good idea. For investing purposes, as much as possible. We don't know what the rest of 2020 has in store for the economy or the stock market, but it never hurts to be prepared, and the more cash you have available to invest with, the more opportunity you'll have to build a killer portfolio that serves you well for many years to come.