With the global pandemic COVID-19 disrupting economies and jobs around
the world, there has never been a more urgent time to assess the state of
your emergency savings fund, or build one if you have not already.
Emergency funds function like a shock absorber, easing the effects of
whatever bumps life might throw at you. Whether or not your income has
been impacted in the recent weeks, having emergency savings set aside is
essential to preventing the accumulation of debt. Follow the four tips
below to quickly build on an existing emergency fund or start a new one,
and lessen or prevent the weight of financial burden.
- Determine your expenses -
Whether your job status has remained the same or your employer has reduced your hours immensely (or entirely), determine how much of an income shortage, if any, you are facing. Next, figure out how much you spend each month and which of those expenditures are fixed (housing, food, transportation, etc.) and which are flexible (entertainment, subscriptions, non-essentials).
- Establish a realistic savings goal - Once you have determined your total expenses each month, multiply that number by three to establish your initial emergency fund goal, which when reached, should be three months worth of expenses. When establishing your emergency savings goal, also take into account the potential crises you are, or could be, facing, such as a health crisis, job loss, natural disaster, or economic downturn.
- Scrutinize budgets and save unexpected money - Now, more than ever, is an ideal time to review your existing monthly and/or weekly budgets. Rather than stocking up on excess toilet paper at the grocery store or paying for magazine or premium cable subscriptions, cut the unnecessary spending and transfer your newfound savings to the emergency fund. Also, if you receive commission or a bonus at work, a tax refund, or surprise cash from a family member, add as much of the unexpected cash into the emergency fund as possible.
- Automate your savings -
After assessing how much money the newfound changes in your spending habits (i.e. spending less on workout classes, eating out, salon treatments, etc.) might yield you, set up a weekly automatic transfer from your checking account to your emergency savings. Essentially, transfer the money you would have spent each week on things like workout classes or dining out to the emergency savings account. The goal is to house three-to-six months worth of household expenses in the emergency fund, so automate your savings accordingly.
Whether the effects of COVID-19 have led you to dip into your
already-established emergency fund or inspired you to create a new one,
following the "4 Tips to Build an Emergency Fund" will set you on a path
to financial security, should this crisis continue or a new one arise.
If you have questions regarding establishing an emergency fund or
concerns on how the coronavirus may affect your financial future,
consult one of our financial experts at NDBT today. Visit www.ndbt.com for
more info. Member FDIC.