COVID-19 is the Time to Start an Emergency Fund
Believe it or not, a pandemic is a good time to start an emergency fund.
Whether you’ve lost your job or are still hanging onto one during the coronavirus pandemic and resulting recession, saving for this emergency and future ones is possible.
Of course, it’s a lot easier if you’re still employed. Paying for basic necessities such as food and housing are obviously important, and an emergency fund should be a low priority if your situation is dire.
But one bright spot during the stay-at-home orders and closing of many businesses is that it’s a chance to spend less. Some things that you’re probably not spending much on, if anything, during Covid-19 include:
- Dining out
- Sporting events
- Theater performances
- Movies out
- Auto insurance
- New car
Those are big ways to save, especially on entertainment and dining out. That’s a lot of money to put away for a rainy day if you can.
The downside is that some expenses are likely to increase during the pandemic. These include the extra costs of being at home all of the time, such as:
- More groceries
- Internet service
- Streaming subscriptions such as Disney+, Netflix, Hulu, etc.
- Higher electricity and water bills
All of these changes make this a good time to look at your finances. If you don’t have a budget, consider starting one. If you don’t have an emergency fund for times like these, start one.
What is an Emergency Fund?
It’s money set aside for a job loss. The point is to have enough money to cover your expenses for at least three months so you can have time to find another job.
Some experts recommend having six months to a year’s worth of savings. Dual-income households may get away with saving less since there’s less of a chance that both people will be out of work at the same time.
However, if both people in a household work in industries sensitive to changes in the economy, such as in travel, then covering six to nine months of expenses is smart. The same goes for spouses working in the same type of job and both being laid off at the same time.
However many months of expenses you want to save, don’t let the high figure be a barrier to starting.
Start by saving enough to cover you for two weeks, then work up to a month and get to three months of savings. Once there, take a break and assess what works for you.
You know what your essential expenses are: rent, food, health insurance, transportation, etc. Some costs such as dining out and entertainment will likely be cut during a job loss, so don’t budget for those when saving for an emergency fund.
Where to Stash Your Money
The fund should be liquid. This means it isn’t tied up in CDs for a year or invested in stocks. A savings account is best.
It should be an account that you can access quickly if needed. If the rent is due in a week, you don’t want to sell stocks at a loss to get what remains.
To keep it out of your immediate reach, you can set it up at a bank that you don’t do the rest of your banking with. This will help keep the money out of your immediate sight and can help stop you from raiding it for a weekend trip.
Contribute to it regularly, preferably with automatic transfers from your checking account or paycheck.
Like a retirement fund, putting money into an emergency fund should almost be invisible to you. You shouldn’t notice it because the money doesn’t hit your final paycheck and checking account.
Out of sight, out of mind. You can’t spend what you don’t have.
Where to Find Money to Contribute
If you can’t afford to automatically transfer money to an emergency fund because you need it for necessities, then look for other sources of money.
You could take on a side job and put all of the earnings in an emergency fund.
Or create a budget and look for expenses to cut. These can include all of the expenses we listed at top that you’re probably not facing during the coronavirus, such as travel.
If your vacation plans were canceled this year, or at least scaled back, put that money in your emergency fund. It’s a great way to give the fund a huge jumpstart.
The same goes for dining out less and not going out to theaters, sports events and concerts. Put that savings aside too.
If nothing else, the pandemic gives you a chance to reassess your spending. Maybe you’ve found an inexpensive hobby that’s a lot more fulfilling than going out to bars and restaurants so often.
Or maybe being stuck at home has deepened your need to travel, so your future goal is to travel more. Start contributing to a travel fund to pay for more vacations.
Spending more time at home can get you to thinking about remodeling your home or improving your back yard. If you can’t do it now, start saving for it.
Try not to let these costs, however, interfere with funding an emergency account. If you haven’t lost your job during this recession, chances are you will in a future one. Having savings to fall back on will make the fall a lot softer.