We’ve seen the headlines. We’ve looked at the statistics. We’ve heard the stories. The coronavirus has not only battered the markets, it’s changed the way we live and work. While it may not be as dramatic as, say, a natural disaster, its’ just as powerful and far reaching.
Throughout my career, I’ve done my best to prepare myself and my clients for what to do in the event of an emergency. As a professional whose very business is helping people plan for the future, I strongly believe in the importance of preparation. Even in these uncertain times, we must prepare for whatever the future holds.
Too few people in this country have followed even the most basic emergency preparedness steps like having food storage, drinking water and medical supplies set aside in the event of a catastrophe. Even fewer are financially prepared. George Washington Carver’s words from the 1940’s still ring true today:
“We have become 99 percent money mad. The method of living at home modestly and within our income, laying a little by systematically for the proverbial rainy day which is due to come, can almost be listed among the lost arts.”
A 2019 Bankrate survey found that 28% of Americans had no emergency savings. Another 25% of respondents said that the cash they had on hand would last less than three months in a financial crisis. If you are one of the 72% that do have savings, it has probably helped you get through these tough times or at least give you some cash confidence knowing it is there if you need it.
Depending on your circumstances, it may be difficult to start building an emergency fund right now, however; now is the time to start thinking about it and making plans to build up cash reserves as soon as you can. This will help you to weather the next disaster better. Following are some ideas about building an emergency fund for the next rainy day:
What is an emergency fund?
Generally, this is defined as having enough liquid assets to cover three-to-six months’ worth of emergency living expenses. This will save you from having to rely on credit cards and loans—after all, being in debt can sometimes be its’ own emergency.
Following are some ideas about building an emergency fund for the next rainy day:
- Determine what amount is best for you. Most experts agree that you should keep between three and six months’ worth of your living expenses set aside in your emergency fund. Your specific situation—whether you have children, carry substantial debt, and types of insurance coverage you have—will determine what amount is best for you. Examine your situation, your income, and your needs to decide how much you should save.
- Start small. Starting an emergency fund can be as simple as depositing $100 every month into a savings account. Also, bear in mind that this savings account should be a separate account, unrelated to whatever you use for daily expenses. That way, you’ll be less tempted to use the money for something other than what it’s meant for.
- Stick to a schedule. Get into the habit of making regular deposits. Whether it is weekly, biweekly, or monthly, create a schedule and stick to it. Once you make saving automatic, you won’t even have to think about it.
- Use that money under the couch cushions. Whenever you find spare change, like that $1 Washington under the couch or the crinkled $10 Hamilton in that old pair of jeans, deposit that into your emergency fund instead of buying a cheap burger. You’d be amazed how quickly that adds up.
- Allocate a portion of your tax-refund. Most people tend to treat their tax refund as a windfall for spending, but if you set aside even as little as 5 or 10% every year, you will be creating an enormous safety net for yourself.
- Define what an “emergency” means for you. Does replacing the transmission on your car count? What about that midnight call to the plumber? Generally speaking, an emergency fund can be used for expenses that come as a surprise that might affect your health or basic needs. On the other hand, it shouldn’t ever be used for expected expenses, like buying groceries or paying for health insurance. And it should never be used for mere “wants.” Making a list now of what your emergency fund is actually for will serve you well in the future.
Unexpected expenses are a certainty. Having an emergency fund can help during crises and aids in alleviating the stress of financial uncertainty. Consider building a cushion for the future. Make saving a new art for you to create a more secure life and future.