Now more than ever, you need to manage emergency money more effectively as the pandemic drags on. In the past few months, healthcare facilities were operating at full capacity. Oftentimes, they were overwhelmed with the influx of patients that frontliners were pulling in multiple shifts just to accommodate all the patients.
This pushed states to bring down a stay-at-home order to prevent further spread of the virus according to NBC News. The goal was to contain the spread as well as decongest the medical facilities. This gave them time to look after existing patients better. But this also had economic repercussions especially when people stayed home for long periods of time.
Since people were all at home, consumer purchases went down. Businesses suffered forcing a lot of them to cut costs. This meant employees were being put on furlough or worse, being let go. This makes it all the more important to manage emergency money now. This will be your source of funds for the next few months if you are affected by the layoffs.
Some people have come to rely on unemployment insurance just to make ends meet. With the $600 boost at the beginning, it was manageable for some. But since it has stopped, making do with the insurance has been tough. Yes, it is better than nothing at all but having an emergency fund at this time would be extremely helpful.
You need to make sure that you are able to keep your emergency fund strong during this time. It will be challenging but it will be more difficult to go through the pandemic without any reserve funds to tap into. As you strip your budget to its very core, do not forget to include your emergency fund in your plans.
Pay yourself first
If you want to manage emergency money well during this time, you need to make sure that you are able to save for it as well. It could prove to be a difficult task but if you do not start now, you will not have any funds to tap into when you need them down the line. The good thing about this is that you can start even with a small amount.
The reason for this is that you are trying to cultivate that habit of saving money. It is a lot more challenging to create that positive habit because you need to be consistent with the action over time. If you begin setting aside a big amount, you will keep on thinking about it. Saving a small amount every payday can help you save and forget about it. This way, you do are not tempted to spend it on unnecessary purchases.
Paying yourself first is similar to what you do with your many lenders and creditors. Once you make that payment, you cannot get it back and you have to work on next month’s payment. Do the same thing when you are saving for your emergency fund. Treat it like one of your bill payments. It can help also if you can automate the process. Make sure that a certain amount is automatically deposited into your emergency fund account before you get any ideas od spending the amount on your wants.
Where to put it
Part of trying to manage emergency money is knowing where to put the amount you saved up. When you are trying to figure this one out, there are a few things you have to keep in mind. One is that ease of access. You do not want to have a tough time getting the money you need. There are times you need the funds quickly and if the turn around time is not ideal, your emergency fund will not be of much help.
The other factor you have to consider is to look at the potential growth of your funds. You do not want the amount sitting on a non-interest earning account. If your funds remain stagnant over a long period of time, inflation will kick in and weaken your savings. You can consider opening a high-yield savings account. This is a lot better than a regular savings account.
Make sure that the account you open is FDCI insured. According to the Federal Deposit Insurance Corporation or FDIC, the standard insured amount is $250,000 per depositor. This means that you have the United States government insuring your account. This can give you a sense of relief knowing that your fund is safe and insured up to that amount.
Manage emergency money by identifying when you can use it
Now that you have created that habit of saving money and ensuring it is in a safe place, you can now focus on how you use it. Seems easy enough but that same sense of complacency can cause your fund to dwindle down. Remember that it is much easier to spend money than to save it. A few missteps can wipe out all your hard work.
As you build your fund, you need to put safeguards in place to make sure you use it the way you intended it to be. Emergencies can be subjective and if you end up convincing yourself that a new pair of shoes is an emergency because it is on sale, then your emergency fund will be wiped out quickly. You can choose to list them down so you have a document to stick to.
List down the instances on when you can use your reserve funds. You can consider creating two types of reserve funds – an emergency fund and a rainy day fund. The former can address serious situations while the latter for smaller needs. This way, you keep your big fund intact when the time comes that you need to use it.
Live within or below your means
One of the best ways to manage emergency money effectively is to find ways to strengthen it. Adding money consistently will help but if your budget is already backed-up against the wall, this could be tough to accomplish. This is where living within or below your means comes in. You make sure that you always follow your budget.
When you overshoot your budget, it will be necessary to slash down on some items. Your emergency fund savings can be one the chopping block since you should focus on basic necessities first. This is where living below your means can be of help. For some people, this is simply referred to as a frugal lifestyle.
Being frugal is having a budget but finding ways to spend less than what you have planned to. This means being creative and maybe cooking your own meals at home rather than ordering take out. It can also be sticking to one movie streaming service for everyone at home. If you have two cars, this can be about selling the other one and arranging schedules around to fit one car. Frugality is trying to save more and using your creativity to make it happen.
It is important to try and manage emergency money at a time when there is a pandemic to help you stretch your finances. The stronger your reserve funds are, the better you can face the problems that come your way. You can focus on finding a solution while your emergency fund takes care of your household budget.