What the COVID-19 Pandemic Has Taught Us About Having an Emergency Fund
A financial crisis is unexpected but that doesn’t mean you have to be unprepared. Read these expert tips for budgeting during economically strained times.
Make use of your backup plan
Whether you’ve got multiple savings accounts or are struggling with living paycheck to paycheck, the COVID-19 financial crisis has likely caused you to take a hard look at your financial health.
“The economic impact of the COVID-19 pandemic underscores the importance of having an emergency fund available to help deal with unforeseen situations,” says Melonie Dixon, Vice President of Deposit at Oaken Financial. “Should you face an unexpected expense or a disruption in income as so many are currently dealing with, an emergency fund can help get you through a difficult stretch.”
Even if you’ve been one of the lucky Canadians to maintain employment and a regular income during the pandemic, an emergency fund is still an important safety net for unexpected expenses such as home or auto repairs.
“Given the degree of disruption many are facing right now, the priority at this time must be on protecting your family and staying healthy. But once we get through this crisis – and we will – rebuilding your emergency fund should be a top priority. As our recent experience shows, it’s impossible to know when the next emergency might come our way and having a reserve fund is one of the best things you can do to help safeguard your family,” says Dixon.
Separate your savings
Just as you set aside money for your emergency fund, you should also be putting aside money for future goals, such as home renovations and vacations. It’s helpful to have separate savings accounts for each goal as well as a general savings account. That way it’s easy to prioritize your goals and quickly see how you’re doing for each individual fund.
Create a monthly budget and set-up automatic transfers into each savings account. If something changes, you can always put a stop on automatic transfers or redirect funds to another account. For example, your vacation fund may not be a priority to you at this particular time, so you might consider lowering the amount you’re currently contributing there and increasing your contribution to another savings account.
Look for ways to save on monthly fixed expenses
Having multiple savings accounts gives you some flexibility to redistribute funds when an emergency arises, but it can be much harder to cut back are your monthly fixed expenses. Luckily, there are some areas where you may be able to find savings from your monthly fixed expenses.
Before grocery shopping, make sure to meal plan and make a list of what you need. Planning your meals around what items are on sale will help you save money. Joining your grocery store’s loyalty program will also earn you savings on future purchases.
Other monthly expenses you may want to reconsider include expensive cable packages and having a landline in addition to a cell phone. You should also unplug any electronic devices and appliances when they aren’t in use. According to a study by Hydro Quebec, up to 10% of a typical hydro bill can be attributed to phantom usage, whereby devices that are turned off but still plugged in are continuing to draw power.
These savings may seem small but they add up over the long term and could be enough to bring you some peace of mind during a particularly stressful financial period.