LendingClub (NYSE:LC) notes that if you’ve been struggling to make ends meet, then you are definitely not alone. Amid the ongoing COVID-19 pandemic, nearly 30 million US residents are still facing unemployment, which has compounded existing struggles for workers who may have been living paycheck-to-paycheck even before this crisis.
LendingClub pointed out that for many of us, COVID has created “even more of a reason to build an emergency fund.”
Last year may have taught us that we need to be “as prepared as possible for the unexpected,” LendingClub noted while adding that during these challenging times, finding the “mental space” to develop a “complicated” savings plan (or do “any kind of planning” at all) might seem far from “doable.” However, we should stay positive and focus on growing a “solid” emergency fund without adding to the stress we’re already experiencing, LendingClub noted in a blog post.
The online marketplace bank also mentioned that financial experts usually suggest saving 3 to 6 months’ worth of expenses. Although this is generally a good rule to live by, “right now that can be difficult for many—if not downright impossible,” according to the US-based public neobank.
Going on to comment on how we can effectively manage our finances during difficult times, LendingClub noted that we might start by “saving up enough to cover your essential expenses for one month.” After we have reached this mini-goal, then we can build up our savings to 2 or 3 months’ worth of expenses, the online lender recommended. The company’s blog post also mentioned that we can add non-essential expenses such as our smartphone data plan to the mix. Or, we can begin saving for “unexpected” expenses such as car repairs or medical bills, the lender suggested.
“The important thing to remember is that it’s you who gets to decide what your goals are. And as your life changes, so can your goals. Need a little help deciding what a reasonable goal might look like for you? Start by tracking your fixed and variable monthly expenses.”
The online lending platform’s management explained that examples of fixed expenses may include mortgage or rent, auto payments and insurance, and health insurance. Meanwhile, variable expenses may include groceries and utility bills.
After we’ve determined what our monthly expenses might be, we can use the estimates as a baseline to set our financial goals.
LendingClub further noted:
“We have a tendency to ‘go big or go home.’ Once we set our minds to something, we want to get it done as fast as possible. And often, when we think we aren’t keeping up, a lot of us end up frustrated, anxious, and down on ourselves. But the truth is, very few people can build emergency funds overnight. Saving takes time. And we all have financial emergencies and unexpected events that can set us back from time to time.”
For instance, we might try canceling a few of our online streaming subscriptions. After we’ve saved enough to cover a weeks’ worth of groceries, we might give ourselves “a high five,” the online lender added while suggesting that we can “try dropping those meal boxes or other conveniences until you’ve saved up enough for one month’s rent.”
As mentioned in LendingClub’s blog post, “any extra money [we] set aside is worth celebrating, no matter how small.”
While sharing more money management tips, LendingClub noted:
“Making small changes to your spending habits over time can help you build savings and reduce your living expenses. Be persistent because it may feel challenging at first. Your momentum (and your confidence) will build once you see your emergency fund start to grow. The key is to look for small moves you can make without feeling overwhelmed by change. For example, leave your debit card at home and pay for groceries in cash. Set up a direct deposit to your savings. Or bike to work. Any positive change in your spending habits (again, no matter how small) will make a difference.”
LendingClub pointed out that high-interest rates might be cutting into our savings. In 2019, US residents had been carrying $6,194 in credit card debt on average, according to Experian data.
The online lender recommended that if we are able to afford it, “repaying debt while you build your emergency fund could save you hundreds (or thousands) in interest over time.” With a debt consolidation loan, you “borrow what you need to pay down all (or most) of your credit card balances,” the lender explained, while adding that you (or your lender) “pays off your creditors, and you make one single payment — typically with a much lower interest rate — to the lender.”
LendingClub also noted that we must “be sure to consider our situation, and the lender, carefully.” The neobank added that you’ll want “to know you’re getting the best rate and terms at a monthly payment that you can afford to pay each month.” Comparison shop for rates in order “to get the best offer,” the lender suggested while reminding us to carefully read all the loan documentation before we sign off on anything, and must watch for red flags such as hidden monthly fees.
LendingClub reminds us that it takes time to create our safety net, and “no action is too small.” The lending platform also mentioned that we need to “take time to reflect on our savings goals, set reasonable deadlines, make adjustments when life throws curveballs, and celebrate your progress along the way.” And when we find ourselves in a difficult situation without enough emergency funds, there’s “still solutions out there,” the company noted while pointing out that a personal loan might be able to help provide the money you need with the terms and conditions you can afford.