Do you feel that you might be financially strapped in the coming months with all that’s been happening lately? If the answer is yes, you’re not alone. Many of our clients are feeling the same way. So — if you have an emergency fund, now may be the time to check the balance there.
What is an Emergency Fund?
An emergency fund is money you set aside to cover the financial curveballs life throws your way when you can least afford them, like when your car breaks down, have a leak in your apartment or worse, the world shuts down. These surprises can be both stressful and costly. In fact, not being able to pay for unexpected expenses is the top financial concern for more than 50% of Americans.
Should I Dip Into My Emergency Fund Now?
That depends. If you feel that your job is stable and you’re on track with your current financial plan, there is no need to panic or change anything. Keep putting money into your emergency fund and continue your savings and debt payoff strategy as you have been doing. In fact, you may be able to save even more now since most of us are staying in.
If you feel a bit financially insecure, now is the time to take a long, hard look at your income and expenses, work on your budget and see where you can cut out unnecessary costs (e.g., certain monthly subscriptions). Then see how long your emergency fund will cover you if your work hours were to be reduced or if you unexpectedly lose your job next week or next month.
If you do decide to dip into your emergency fund throughout this economic crisis, make sure you use the next few months thereafter to build the fund back up. You should always make sure your emergency fund cup is full (we recommend 3 – 6 months worth of living expenses) before putting money into other areas, such as investments or vacation funds.
What If I Don’t Have An Emergency Fund?
Don’t panic, you’re not alone. According to a 2019 Federal Reserve Report, nearly 40% of Americans would struggle to pay for an unexpected expense of $400 or more. That’s why setting up an emergency fund is one of the first things we do with our clients.
Setting up an emergency fund is our #1 recommendation for becoming financially healthy, along with paying off your credit card debt and personal loans. Emergency funds keep you from racking up your credit card again in future, and is fundamental in breaking the paycheck to paycheck cycle. With an emergency fund, you shouldn’t ever have anxiety over when your next pay day is – you have money stashed away for any unexpected expenses that may pop up!
How much is a good amount? We recommend at least 3 – 6 months worth of living expenses stashed away in your emergency fund. And if that seems like an unreachable goal right now, that’s ok – it’s a totally normal feeling at first, especially if saving every month has never been a part of your financial routine. The important thing is to start saving something today.
I’ve Tried and I Just Can’t Seem to Save
Need a little push to get started saving?
That is where I and our team of expert financial coaches come into the picture – to work with you and support you in achieving financial security and stability, particularly during these uncertain, slightly scary times.
Research shows that when you have a coach who encourages you, with whom you can speak openly and honestly, the chances of achieving your goal skyrockets to 95%. And that is what we do at Diamond NestEgg – listen, encourage, empower and help you create a realistic, step-by-step financial plan. Our door is wide open for you, now more so than ever before. We’ll get through this together and we will all come out stronger.
Shoot us your questions at firstname.lastname@example.org or schedule your first free coaching call to talk about whatever is on your mind right now, financial or otherwise. The first call is on us. Or if it suits you better, register for one of our free online Wednesday workshops at 12pm and 6:30pm ET.