4 Ways to Make the Most of Your Pandemic Savings

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Have extra money on your hands? Here's how to make the most of it.

The coronavirus pandemic has forced millions of Americans into unemployment, and many households have struggled with income loss over the past 12 months. On the flipside, however, are those people whose finances have improved over the course of the pandemic.

Between stimulus checks, remote work, and canceled social plans, a lot of people are saving more now than ever before. If you're in that boat, here's how to make the most of that money.

1. Build or boost your emergency fund

If there's one thing the pandemic has taught us, it's that you never know when a financial emergency might strike. That's why it's crucial to have an official emergency fund -- money to get you through a period of unemployment or to help cover unplanned expenses, like medical bills, home repairs, or car repairs.

How much money you need for emergencies depends on your circumstances and comfort level. If you don't own a home or car, don't have kids, and tend to take unplanned bills in stride, then you might settle on three months' worth of living expenses in the bank. That's really the minimum you should aim for in emergency savings. But if you own a home and have a family to support, six months' worth of living expenses may be a more appropriate savings target for you.

Some people may also need more like nine to 12 months' of living expenses in the bank for true peace of mind -- especially in the wake of the pandemic. There's nothing wrong with socking away a little extra money if you can swing it.

As far as where to put your emergency fund, your best bet is a savings account. That way, your money is protected. If you're building a very robust emergency fund -- one with around a year's worth of living expenses -- then you may want to put six months' worth of bills into a regular savings account and the rest into a shorter-term certificate of deposit, where you might get a better interest rate on your money.

2. Pay off high-interest debt

Some forms of debt are considered healthy. A mortgage, for example, helps you eventually own an asset (your property) that you can borrow against or sell at a profit. Credit card debt, on the other hand, is glaringly unhealthy. Too much of it could damage your credit score, and when you carry a credit card balance, you automatically pay more for your purchases via interest charges.

If you're grappling with a nagging credit card balance, you'd be wise to use your pandemic-related savings to chip away at it -- provided, of course, that you're all set on emergency savings. If you have a single credit card balance to tackle, you can work on putting more money toward it as you can. But if you're dealing with several balances, consolidating that debt via a balance transfer or personal loan may be your best option.

3. Start investing

So you're all set on emergency savings and don't have unhealthy debt? Great. If you have extra money on hand, it's time to consider investing it -- so you can grow it into a larger sum over time.

If you're new to investing, start out by opening a brokerage account and choosing a few stocks you're familiar with. Often, investing in companies whose products you use is a good way to get started -- but read up on those companies first to make sure they're not facing any specific financial challenges.

4. Save for the future

Your emergency fund is money you might need next month, or next year. But if you're all set there and don't have unhealthy debt, another option is to look at socking money away for your retirement.

But it's important to understand that if you put money into an IRA, you won't be able to withdraw it until you reach age 59½ -- and that's a big commitment. But there are tax benefits to saving in a dedicated retirement plan, so it's worth funding an IRA with the money you're saving during the pandemic. Plus, think about it this way -- you'll need savings once you retire to live comfortably, so the sooner you can get started, the better.

Many people are barely getting by during the pandemic, but if you're saving more than ever, you have a great opportunity to improve your financial picture. At the same time, though, it wouldn't hurt to give back a little. So in addition to the moves above, consider carving out a donation to a local food bank or your favorite charity. You may not be in as strong a position to give once the pandemic is over and certain expenses start creeping up (think social obligations and a daily commute), so you might as well take advantage of your current circumstances to help out those in need.

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