So here we are in the midst of a global pandemic and you might be wondering to yourself, “How much longer can this go on? And how am I going to make ends meet until it’s over?”
Though things have been difficult, there are positive lessons to be learned from our own preparedness for economic crises. While it would have been impossible to see this exact pandemic emergency on the horizon before it started, this financial crisis is coming with a voice of wisdom telling us to be prepared for future emergencies.
So let’s take a moment to learn how one can be financially prepared for an emergency before it arises, and then how to make up savings-ground during this COVID-19 crisis.
PRE-EMERGENCY: YOU NEED AN EMERGENCY FUND
While the idea of the emergency fund wasn’t unique to him, author Dave Ramsey popularized the notion in his book Financial Peace. His reasoning for having an emergency fund is that you never know what curveball is coming your way that could put you out of the game, having serious effects on your family for years to come.
WHAT IS AN EMERGENCY FUND?
“An emergency fund is simply money you’ve set aside for life’s unexpected events,” says Rachel Cruze. It’s a financial airbag that will help pad you from the financial impact of an emergency like the loss of a job or a serious illness. It’s a safety-net that’s in place for a crisis you don’t know is coming.
An emergency fund isn’t your normal savings account. Your emergency fund is there for only true emergencies, not a last minute boat rental while you’re on vacation. You don’t use the money to finance the purchase of a 1,660 acre beet farm in Pennsylvania, either.
Follow Wells Fargo’s advice: “Tap your emergency savings only for expenses directly related to an unexpected emergency.”
WHY HAVE AN EMERGENCY FUND?
Because you don’t know what is going to happen. You may lose your job (as many have in the past weeks due to the effects of COVID-19) or your HVAC unit could go out in the horrible summer heat or freezing winter cold.
HOW BIG SHOULD YOUR EMERGENCY FUND BE?
Well, that depends on a number of factors. Are you married? Do you have children? Is there more than one income in the house? Are your jobs steady? Are you a contract worker? Do you or someone in your family have a chronic illness? If you are at low risk for needing one, a 3-month emergency fund will likely suffice. But if you have a family, are a single-income household, or are at risk for a medical condition, a 6-month emergency fund would be the wiser route.
WHERE SHOULD YOU KEEP YOUR EMERGENCY FUND?
Somewhere that is very simple to access. This will likely be a checking account out of which you can use checks or a debit card when the need arises. At the same time, you don’t want too easy of access, either, where you are tempted every time you make a purchase to use your emergency fund debit card rather than your normal one.
HOW DO YOU SAVE FOR AN EMERGENCY FUND?
Well, the first step is creating a monthly budget—then sticking to it!. Don’t plan for more than you make, and don’t spend more than you plan. Then whatever you have left over, that goes into the emergency fund. Once you hit your emergency fund goal, you can then use that extra-budgetary money to fund another saving project, like a vacation or a new(er) car.
MIDST-EMERGENCY: WHAT TO DO NOW?
The Novel Coronavirus pandemic caught almost everyone off guard. Though we had warnings starting back in December, the large majority of Americans didn’t expect an almost total economic shutdown to happen in a few month’s time. So many of us now are left scrambling to evaluate and plan next steps (when we don’t know what we should be planning for).
EVALUATE YOUR SITUATION
The first step to take is to evaluate where you are in the financial landscape. Take time to hunt down every dollar (or potential dollar) you have at your disposal in various bank accounts, investments, coin jars, etc. Do you have bonds in a safe deposit box? Do you have points earned on a credit card that could be turned into cash? Though the markets have fluctuated quite a bit over the past few months, do you have stocks or real estate that could be sold if necessary? How much are they worth now?
INVEST IN YOUR FUTURE
Remember all of that emergency fund talk above? Well, once you know what you’re working with in dollars and cents, look at how much you could put right now toward your emergency fund. You may be thinking—”wait, we’re in the emergency right now, why would I put money in an emergency fund when EVERYTHING IS THE EMERGENCY!” Well, while things may be bad right now, we don’t know how much worse it can get. If you have access to money, it would be very wise to build your emergency fund (back) up in preparation for what might be coming around the bend. You won’t be sorry!
PAY DOWN YOUR DEBT
If you still have an income right now, it would be a great time to look at paying down any debt you have. You don’t know if you might need access to that credit in the coming months to buy food, so paying off the clothes you purchased a few months ago to clear room for future needs would be a great idea.
Taylor Tepper at Newsweek suggests, “Use a card with a long zero-percent financing period (15 months or more, ideally) to pay down credit card debt, which has been rising recently. Or if you have debt on two different cards, consider paying off the one with the smallest balance first, regardless of the interest rate.”
REFINANCE YOUR MORTGAGE
If you have a mortgage right now, it would behoove you to put some research time into refinancing your mortgage. One positive that has come out of this crisis is that banks are offering record low mortgage rates. Dropping from 4.85 percent in November, you can find 30-year fixed rates at around 3.375 percent. That can save you a lot of money per month, and cut your total loan amount by thousands of dollars.
WE CAN HELP YOU RIGHT NOW
Does all of this talk about money cause your vision to go blurry and your knees grow weak? We understand what you’re feeling! We have decades of experience helping people just like you get a handle on their finances and tame the financial chaos that they feel like they’re in. We believe that you have value and we have the expertise to help you. We invite you to give us a call at (888) 272-7102 or reach us online and let us help you gain clarity and hope.