Should You Put Savings on Pause?

High inflation and a sluggish economy are negatively affecting bank accounts across the country. To make ends meet, consumers are reigning in spending by eating more meals at home, driving less, and seeking lower-cost entertainment options. But when lifestyle changes don’t free up enough cash to pay all the bills, many households stop making deposits into their retirement plans, emergency funds, and other savings accounts.

While redirecting funds could give your budget, the breathing room it needs during uncertain financial times, there are drawbacks to stopping a savings habit — even temporarily. So, before following in the footsteps of other households, consider the pros and cons of temporarily pumping the breaks on your savings.

Benefits of Saving Money

Whether participating in a tax-advantaged retirement plan, growing an emergency savings fund, or planning a destination wedding, setting a specific savings target keeps you focused and less likely to spend money on nonessential items. Additional benefits include:

Fewer retirement worries. Regularly contributing to a tax-advantaged retirement plan could allow for a comfortable financial life after you leave the workforce. Financial advisors encourage individuals to set money aside for retirement early and often. The U.S. Social Security Administration has indicated that by 2035, there will only be enough funds to pay 75% of scheduled benefits.

Less debt. A healthy savings account balance can be the interest-free source of funds you need to cover a large, unexpected expense. Instead of adding to existing debt, you can access money quickly without needing to apply for credit or pay finance charges.

Budget stability. Car repairs, sudden illnesses, and other emergency expenses can wreck a tight budget. But when you have extra funds to cover unbudgeted items, you can stay on track with regular bill payments. Without a saving fund, you may need to forgo paying bills to cover unforeseen expenses.

Worry-free spending. When you save before spending, you can go on a dream vacation, purchase an upgraded vehicle, and more without stressing over how you’ll pay for it. This might allow you to enjoy the purchase even more.

Protection against income loss. If you or someone in your household loses their job, it could devastate your finances. But a savings cushion could bridge the financial gap while searching for a new job.

Decreased finance costs. The more money you can put as a down payment on a new home or auto, the less you need to borrow. A smaller loan amount could result in a reduced monthly payment and lower borrowing costs.

5 Reasons to Pause Saving

The benefits of saving money extend far beyond those mentioned here. However, sometimes it might be wise to temporarily pause your savings plans. Some situations include an inability to:

• Pay for groceries
• Fill up your gas tank, leaving you with no means to get to and from work
• Make on-time bill payments (late payments may result in late charges, lower credit scores, and disconnection of services)
• Agree with your partner about the frequency and amount to save each month

These temporary circumstances might warrant putting your savings on hold, but not abandoning the habit altogether.

Other Considerations

Pulling the plug on savings could cause you to lose out on compounded growth, which is key to building substantial wealth. However, saving money might not seem that important if you’re at risk of losing your home or not having enough money to feed your family. Consumers should exhaust all available options, including federal, state, and local assistance programs, before putting a pause on savings.