Here’s how to get your emergency fund back on track.
By Jenny Hoff
If the COVID-19 crisis has taught us any financial lesson, it is that an emergency fund is a necessity. Beyond 401(k)s or other investments, which are also very important, an emergency fund is an easily accessible account with at least three to six months of living expenses that you only touch in a catastrophic situation to cover your necessary expenses. If you don’t have one or if you’ve depleted your savings, now is the time to rebuild as we don’t know what the future of COVID-19 will bring. Here are some ways to get started.
MAKE SURE YOU ARE APPLYING FOR EVERY STIMULUS OPPORTUNITY AVAILABLE.
You’ve likely either received or heard of the one-time federal stimulus checks sent out in April and May. However, there are more benefits you may qualify for, even if you didn’t in the past. The Texas Workforce Commission has added new information to its website specifically for self-employed individuals, child-care workers and job seekers. Go there first to see if you qualify for benefits. Federal stimulus money is being added to normal unemployment benefits in some cases, so make sure you do your research and take the time to fill out the forms and provide the information needed to receive the benefits.
STRETCH YOUR MONEY.
You may think you are already forgoing a lot of the little pleasures you used to indulge in. But, Scott Sonenshein, a professor at Rice University and author of Stretch: Unlock the Power of Less and Achieve More Than You Ever Imagined, argues that there is always more stretching you can do. Whether it’s delaying your weekly grocery trip by a few days and making do with what you have in your cabinets and freezer, or stopping all online shopping for a couple of weeks, there are ways to stretch your dollar further and build up more cash in your accounts. “I want people to recognize that no matter how little or even how much they have, there’s a lot more that they can be doing with what they have,” he says. “Don’t worry about constraints; don’t worry about overcoming scarcity. These are actually things that counterintuitively could make us more productive and more satisfied.”
REFINANCE, DOWNGRADE AND SELL.
Let’s start with the least painful of these options: refinancing. With historically low interest rates, you may qualify for a much lower mortgage payment than you are currently paying, possibly saving you hundreds of dollars a month that could go straight to your emergency fund. If that’s not an option, look at your major expenses where you still have quite a bit of debt, like your car or a boat, and see if it’s time to sell what you don’t really need or downgrade to something more practical. The same goes with an apartment; consider taking on a roommate or moving to a cheaper place or a smaller unit. You will feel immense freedom in getting rid of unnecessary debt and lowering your fixed costs so you can build up a cash fund in case of an emergency.
Worry less about how much you can contribute to your savings account and focus on contributing something. Once you see your emergency fund growing, you’ll feel inspired to find more ways to add to it, giving yourself some financial peace of mind in a situation you can’t control.