What is that one financial lesson that you should have taken seriously before this crisis happened?
Having enough emergency funds.
Now that we are heading further into the recession, a lot of us are feeling the importance of having sufficient funds to tide us over. For those of us who have it, we feel more secure and we are thankful that we have something to rely on financially. And for those who are unfortunate to not have emergency funds, they now understand how things would have been different if they had it.
According to a report released by the Federal Reserve, only 43% of adults said they were doing financially okay while 29% are living comfortably. This is a huge decline from a year age wherein the survey revealed 75% were doing okay and 36% were living in comfort.
If you’ve been listening to the news, you will not be surprised by this revelation. The coronavirus pandemic has forced the economy at a standstill. People were told to stay inside their homes and that kept them from supporting small businesses. With less consumer spending, the economy went into recession. Businesses are cutting losses, people are losing their jobs, and the government’s financial resources are being sucked dry by the health crisis.
All of these are bound to affect our personal finances. This is why a lot of people are no longer saying that their finances are doing okay. And for those who did not implement the financial lesson of saving up for an emergency, things will only get worse from here.
How this financial lesson can help right now
But how will this particular lesson help out right now? How will an emergency fund make your life easier during this crisis?
Apart from making your financial future secure, an emergency fund can also be useful in helping you with a couple of improvements in your personal finances. Especially after everything that is happening right now.
Funds your expenses
First of all, it can help fund your expenses. When something compromises your finance, like losing a job, where will you get the money to pay off your monthly expenses? How will you buy the things that you need on a daily basis? This includes food and groceries. And it also includes all your payables like rent/mortgage and all the utility bills that come on a monthly basis. Regardless of what’s going on in your life, you need to pay for these. And if your income decreases or you lose your job, you still need the money to pay for these expenses. Where will you get the money to pay for these? You use your emergency fund. It will help sustain your needs while you find other ways to increase your income.
Keep you from using debt
If you took this financial lesson seriously, you would have enough emergency fund to help you avoid debt.
As mentioned, even if your income is compromised, that will not exempt you from all the expenses that you have to meet each month. The crisis you are going through might even make your expenses increase. And if you don’t have the cash to pay for that, guess what you will use to pay for your expenses?
Probably your credit cards! While we want to use credit wisely, there are times when we don’t have a choice but to use it. After all, if you are choosing between debt or an empty stomach, you would want to make sure that your family is fed. Or that you continue to have a roof over your head.
But the thing about using debt as a solution is this: you are just swapping one problem with another. You may survive today, but you will face the debt in the future. You still have to pay that off.
The financial lesson here is that debt is avoidable. If you have enough emergency fund, you should have the funds that you need to pay for what you need.
Makes you feel secure
Finally, having an emergency fund will make you feel secure. Going through a crisis is bad enough. It doesn’t matter if it’s a health crisis or a financial one. It will be hard. And if you want to survive it, you have to keep a clear head. That will help you make the right decisions that will get you through this. But that is hard to do if you are constantly worried about where to get money to pay for your needs.
If you have an emergency fund, you don’t have to worry about anything. You will feel more secure about your finances. Instead of worrying you can set that aside. You can focus on finding the means to improve your current situation. If you are sick, you can concentrate on getting yourself better – or taking care of a sick loved one. In case the problem involves losing your job, you can fully focus on finding another means to earn money.
As you can see, by taking one financial lesson seriously, you would not have such a hard time with your current situation.
Tips to boost your emergency fund in the middle of a crisis
In case you don’t have an emergency fund or you don’t have enough of it, here are some tips that will help you give it a boost. You can use these tips even if you are in the midst of a crisis or having financial difficulties.
If you think that it’s hard right now, it’s not impossible. In fact, a lot of Americans are saving more since the coronavirus pandemic started. According to reports, savings accounts grew by 2.7% from February to March and 4.4% from March to April. Back in 2019, the savings growth from month to month was only 1%. This means that despite the unemployment and the effects of the recession, people are making an effort to boost their savings.
So regardless of what you’re going through now, you can still save money. That is an important financial lesson that you should also take away from what’s happening around us. It will take time but slow progress is better than nothing. What matters is that you should get started on these tips now.
Be conscious of every penny you spend
Begin by being more conscious of how you spend every penny. Whatever you save from spending less can be used to give your emergency fund a boost.
Let’s start with cash. You have limited resources especially if you just lost your job. So you have to be very careful with how you spend your money. Every purchase should have a purpose. If it’s not for your survival or something that will improve your financial situation, don’t spend on it.
This also involves your credit spending. If you run out of cash, you need to use your credit card wisely. Hold off credit purchases for as long as you can. And make sure you have a plan to pay it off. It may not be right now, but once the crisis is over, you should have a plan to pay off your dues.
Find ways to get more cash
There are many ways for you to do this. The most obvious is to find another source of income. This is also applicable even if you still have a job. Having more than one source of income will help secure your finances. That way, even if you lose one, you can still rely on another income.
You can also get cash from your tax refund. So if you are expecting to get one, you might as well file early so you can get the money as soon as possible.
Another thing that you can do is to apply for hardship programs or unemployment packages. This is especially true if you lost your job. You can rely on the government to support your needs during this time. Whatever you can get should be used sparingly so you can set some of it aside for your emergency fund.
Check assets that you can access just in case
Finally, you should look at the assets that you currently have. Ideally, you should touch your assets as a last resort. But until that happens, it helps to know what you currently have. At the very least, it will help make you feel secure that you have something to rely on when things really get tough.
Among the assets that you can tap into includes your home’s equity and your retirement funds. Just make sure that you understand how to use these funds. That way, you will not compromise the assets that you’ve built so far.