3 ways I'm cutting my spending until 2021 to boost my emergency fund

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  • Some economists think we could experience a second recession, especially if COVID-19 cases get high enough to cause another shutdown.
  • To prepare myself financially, I'm keeping my spending at a minimum even as my income recovers from the hits I took when the pandemic started.
  • I'm not re-integrating spending categories like travel, salons, and dining out into my budget until 2021, which helps me save money and keeps me safe.
  • At the same time, as I take on new work, I'm diverting all of that income straight to my savings account. That way, I can replenish my emergency fund and build a savings cushion for low-income months.
  • See Business Insider's picks for the best high-yield savings accounts »

Some felt the economic impact of the coronavirus pandemic more than others, but there's no doubt that it triggered an economic dip. 

While many are still struggling, some industries are already showing signs of recovery. Retail sales and real estate appear to be bouncing back, and unemployment has been falling for several months. 

That being said, economic recovery might be slowing down, and we're certainly not home free. The US recently hit 5 million total cases of COVID-19, and in some states, daily new cases are still on the rise.

I lost about 50% of my income in the wake of COVID-19, and am finally seeing it start to return to pre-coronavirus levels.

As my wallet recovers, I'm remaining financially cautious. Here's why.

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Economists say we could have a W-shaped recession, so I'm keeping spending low

There's been discussion amongst economists about what the shape of the COVID-19 recession will look like.

The optimal outcome would be a V-shaped recession, in which the economy declines sharply (as it already has) but then recovers just as sharply, creating a V-shaped curve. But there are many other possibilities.

Some economists posit that it might be U or Z-shaped, and others still think it could end up looking a lot like the Nike swoosh.

The one potential shape that has me worried — and the reason I'm keeping my spending low even as my income recovers — is the W shape.

In a W-shaped recession, the economy declines sharply (which happened when the pandemic was declared), recovers (which is currently happening), and then declines again when a second wave of the recession hits. If we reopen too quickly and people relax their use of preventive measures like mask-wearing and social distancing, a new wave of outbreaks could force us into another round of closures. This, compounded by the expiration of stimulus measures from earlier in the year, is why some economists are warning consumers that we might experience a "double-dip" recession. 

According to experts, W-shaped recessions are rare, but I still want to be as prepared as possible. For me, this means keeping my spending low so I can increase my nest egg and have a robust emergency fund ready if I lose work again.

How I cut my spending down when my income took a hit

The pandemic forced me to cut out several of my biggest spending categories — travel, for example, was where most of my money went pre-pandemic — so it wasn't hard to cut costs when I lost out on some income. I also had to cut back on salon visits and dining out, since those businesses shut down.

That being said, I struggled to keep spending under control in other ways. I spent a lot more on delivery, something I rarely did before the pandemic, and I also spent more on groceries because cooking was one of the few activities I could do. Also, replacing my former hobbies like travel and yoga classes with new, socially distant hobbies wasn't necessarily free. I managed to accumulate watercolors, a beginner's embroidery set, and a tie-dye kit all during lockdown.

Luckily, I quickly found ways to cut costs on all of these things. My Chase Sapphire Reserve credit card comes with a complimentary DashPass, so I don't have to pay for delivery anymore. I've also found creative ways to use my credit card points to pay for my newfound hobbies, like when I used Chase points to buy a Nintendo Switch Lite. I could also redeem my Chase points to "erase" grocery store purchases, which I did a few times when I was facing a big credit card bill at the end of the month.

How I'm maintaining this low level of spending as my income increases

Those were small changes. The bigger changes came into play when my income went back up. 

When I finally got new clients and some projects that were put on pause amidst the pandemic re-started, I set up my new paychecks to be directly deposited into my savings account. Even though I'll make three times more in August than I did in June or July, my spending level will stay the same.

My goal is to get my emergency fund up to at least a year's worth of living expenses, which was where it was before I had to dip into it in order to cover some big expenses after the pandemic hit. Once that's replenished, I want to save a few thousand more as a cushion for low-income months, given that my income does fluctuate.

To keep myself motivated, I've set up "savings buckets" in my savings account for fun savings goals. I have one for a pair of roller skates, another for "treating myself," and another for a campervan I'd like to buy eventually. The money I save goes toward my emergency fund and my retirement savings first, but anything leftover will go toward these other goals. This helps me feel less "deprived" by my lower spending rate so that I don't give up and go on an impulsive shopping spree.

Now that most things are re-opening, I could go back to spending money on travel, getting my hair and nails done, and dining out. However, my plan is to avoid all of those things until 2021. Not only do I feel safer doing so given that infection rates are high, but I'll be stashing away money in case the economy takes another hit.

Do you have a personal experience with the coronavirus you’d like to share? Or a tip on how your town or community is handling the pandemic? Please email [email protected] and tell us your story.

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