Narrator: What happens when all your accounts are empty? About half of Americans burned through their savings by the end of April, just weeks into the coronavirus crisis. That means most of us find ourselves either needing to replenish our emergency funds or needing to start one in the first place.
For financial planner Eric Roberge, emergency funds are a financial tool to handle uncertainty.
Eric Roberge: We don’t plan for the perfect times. We plan for the times when we don’t know what’s going to happen tomorrow.
Narrator: We all want to be ready for tomorrow, but can you save for an emergency in the middle of a crisis? We asked financial planner Joe Edmondson.
Joe Edmondson: Yes, I definitely think that there is a possibility to build your emergency fund even in the situation of being in a crisis that we’re in now.
Narrator: Here’s how to get started. Start by making a budget. Your expenses may look a lot different than they did a few months ago, and so may your income. Financial pros agree that the first step to saving is figuring out what you spend.
Joe Edmondson: The way to identify those things is by going back into your credit card and banking statements over the last couple of months to actually identify what those things are.
Narrator: Once you know how much you spend on essentials, set a savings goal equal to three to six months of expenses.
It’s easy to rethink that sailboat you were dreaming of, but holding to a budget also means resisting the urge to panic-buy cases of toilet paper, or an egg-laying hen.
Shopping online makes it easy to track expenses, but it’s up to you to manage recurring orders and avoid impulse buys.
Cancel any recurring costs you’re not using, like subscription services, gym memberships, or public transit passes.
The federal response to COVID-19 has even included relief for some student loan debt.
Joe Edmondson: One of the rules that was passed as part of the CARES Act was that student loans, both the principal and interest payments, up until September 30 are waived.
Narrator: You can also reduce contributions to your 401(k) to direct savings to your emergency fund.
Next, decide where to put your money. It should be easy to reach, but separate from the accounts you use to pay bills, and definitely, not under your mattress. Our experts suggest opening a high-yield savings or money market account from your bank.
Joe Edmondson: The most important part is to automate the process, where you have it set up where every month or every week or every time you get paid, you’re saving a certain amount towards that goal.
Narrator: Pay yourself first. Prioritize your emergency fund over optional purchases.
Last, make some rules for yourself about when it’s time to break the glass on your emergency fund. Losing a job, a medical emergency, or a natural disaster are good examples. Sailboat? Not so much.
Life will go on after the pandemic, but if you can save now, you’ll be better prepared for whatever comes next.