COVID-19 pandemic has taught us the importance of an emergency fund in our lives. Many people lost their jobs with the outbreak of the virus. It is only their savings that help them to survive the situation. An emergency fund is required for unforeseen circumstances such as health issues, financial issues caused by loss of job, etc. Analysts advise that this fund should be at least equal to your 3 months’ salary or 6 months’ expenses. And you must keep it aside for unforeseen circumstances.
An emergency fund is different from your normal saving fund as the goal of the former is different i.e., to fund your important needs in unexpected situations.
- It will help you to fund other expenses as well which are not anticipated by you such as buying a computer, medical emergency, urgent house repair, etc.
- It is very important to note that if you are using the emergency fund to finance any of your expenses, you should try to refill the fund immediately after the withdrawal as any unpredictable circumstance may be waiting for you at the next moment.
- Also, if you are using the same fund for different requirements as stated above, you need to have a bigger emergency size fund that can be used for various purposes. In any case, the fund should not go below thrice your monthly income.
How to use your emergency fund judiciously in a pandemic era?
- Prioritize your financial needs: You cannot use the emergency fund lavishly as the fund is limited and you do not know how long will the pandemic last. You need to prioritize your needs before making any spending from the fund. The expenses which are of utter importance should be prioritized over others so that you can use the fund wisely.
- It is quite obvious that the most important expense during the pandemic is your grocery supply. You need to make cost-cutting in purchasing staples as well since you need to make the fund last longer. Nutrition should be prioritized over taste till the pandemic lasts.
- Your high-interest loans such as credit cards need to be paid first. Not paying your credit card dues may result in the imposition of heavy fees and a levy of huge interest over your borrowings. This may increase the burden on your emergency fund. Hence paying off your credit card bill timely is a wise decision.
- If you are living on rented premises, paying off the rent on time is very important. It is because, in times of pandemic, you do not afford to be evicted from your apartment and search for a new house as shifting your household goods will require money that needs to be paid through the emergency fund only. Also, you may require to furnish a security deposit to the new landlord, which may again create a burden on your emergency fund.
- Education fees for your children are also an important expense and should be serviced timely. If you fail to pay the fees of your child’s school/college on time, the institution may expel your ward which may deprive your child of education or you may have to compromise with the quality of education by sending the child to some lesser prestigious school.
- You should stop spending money on non-important things such as entertainment, dining out, alcohol, etc., as this will decrease your emergency fund and you will fall short of cash for other important expenses.
- You should not stop paying your insurance premium. Insurance (be it health insurance or life insurance) is a vital expense and should be paid timely to avoid the expiry of the insurance. In case you do not pay the premiums on time and your health insurance coverage expires, it may impose a huge financial burden on you for medical treatment required for any ailment. Even if you think of buying life insurance again after the expiry of the previous policy, you may have to pay a higher premium as the premiums tend to rise with the increase in age.
- Last but not least, you should always try to replenish the emergency fund immediately after you withdraw money from it as you never know how soon you will need additional funds for unexpected times.
Like financial advisors say, always keep extra cash handy for unpredictable expenses. Following the given suggestions will assist you in understanding how to wisely use your monetary stash in the pandemic period.