The health crisis highlighted several emergency fund lessons for people to ponder on.
The pandemic put to test not only the medical capability of the world. It also challenged the economic stability of several nations. For a few months, it was as if the whole planet was at a standstill. This was a necessary step in order to curb the spread of the disease. As people were forced to stay at home, it changed the way the market moved.
Since consumers were all at home, it proved to be a challenging time for a lot of businesses. Suddenly, stores and other types of businesses were forced into an unforgiving territory. As most relied on foot traffic, they were not seeing any customers on sight. As a result, some businesses were forced to close their doors. Fortune shares that almost 100,000 businesses closed down permanently due to Covid.
When companies are left with no choice but to suspend operations, employees are either put on furlough or completely let go. This is where your reserve funds come in to help and support you. If you are trying to identify emergency fund lessons, this is probably one of the most important ones you will come across.
It was a tough year and the challenges are still not over. The virus is still out there even with the vaccine ready and available. Though the economy is slowly picking itself back up and some businesses are starting to come back, there is no denying the fact that the health crisis changed a lot of things. And one thing it taught us is the need for a cushion fund.
Emergency fund lessons from the pandemic
If you want to know more about the financial lessons the health crisis has taught people, here are some of the few things to look into.
You need one
There is no way around the fact that you need to have an emergency fund. A lot of people learned this the hard way when they were hit with the pandemic. The income that most people relied on for years was suddenly gone. Companies were struggling and forced to let people go. Unemployment is one of the situations where you can use your emergency fund. CIDRAP shares that over 20 million Americans lost their jobs early last year.
Your reserve fund will help you address your most immediate financial concerns especially your family’s needs. It can give you the chance to go look for ways to augment or replace your income without worrying too much about putting food on the table. You can do both for a few months depending on how much you have saved up.
Balance accessibility with growth
One of the emergency fund lessons people learned during their pressing need to use their savings is access. When you are setting money aside for emergencies, you always need to balance your need to access it quickly with that of growth. You always have the option of simply putting the money in a safe right at home. But that will never see any growth. In fact, it can decrease in value due to inflation
On the other hand, if you put the money in long-term investments, you will have a problem accessing the fund in emergency situations. This is the reason why it is important you are able to balance your access to your emergency money with that of its growth. One option is putting the money in a high-yield savings account. This can give you the access you need with the growth you require.
Let your family know about your financial situation
It will be tough to carry all the weight of your family’s financial responsibility all on your own. If you are still single and living alone, then you might have no choice. But if you are married, and especially if you have children, you need to let them know about what is happening. You need to inform them so you can all work together in managing your finances.
Every member of your family can do their part in helping to cut down costs. You can work with your spouse to overhaul your budget. The goal is to lower down costs and stretch whatever savings you have. This is also one of the emergency fund lessons to take away from the experience. It is important that you work with your spouse when it comes to your finances. The children can also take up certain roles at home. One can monitor and close any unused appliance and even stay on top of your food budget. The more help you have, the easier it gets to stretch your savings in times of emergencies.
This is a good time to revisit your financial goals
Emergency fund lessons can also extend to long term goals. When you are in the middle of a crisis and trying your best to manage your finances, it is easy to forego planning for long term goals. Your focus could simply be getting through the month and be able to put food on the table and pay for utilities at home.
This is the reason why you need to revisit your long-term financial goals. The aim is not to force you to strictly follow your action plan. But to find ways to continue on your path without sacrificing your current need. It could be putting away a lower amount for your retirement fund or even skipping every other month. The goal is not to stop but adjust them in a way where you put your immediate needs first.
Paying down debt can help you stretch your emergency fund
One o the reasons you could be stressed out more than usual is the fact that you have a lot of debt payments to meet. When your current situation negatively impacts your income, debt payment becomes a struggle. One on hand, you need to make sure that you pay your lenders because you risk fees and penalties for non-payments. On the other hand, you need to focus on your most immediate needs to stretch out your savings over a long period of time.
One way to manage this is to reach out to your lenders. You can simply ask if they have a repayment program in place to help their customers, especially during pandemic. They know how challenging repayment is for their clients. In fact, some of them already put programs in place to help ease the worries of their clients. Their support rangers from deferred payments to waiving late fees and even lower interest rates.
You just need to reach out and ask them. If your lender does not have any program to help you manage through a challenging situation, then you can look into minimum payments. In a perfect setting, you need to stay away from minimum payments. But when you are trying to stretch limited resources, this can come in handy.
There are a lot of emergency fund lessons you can learn from the pandemic which could help you manage your cushion fund better. The idea is to use these lessons to help you increase and strengthen your emergency fund. The bigger it is, the more confident you become knowing you have an advantage over emergency situations in the future. It gives you peace of mind when you know you have savings to provide for you or your family’s basic needs.