Prepare Your Finances for the Next Emergency
If there’s one financial lesson many people will take away from the pandemic, it’s the importance of a well-stocked emergency fund. In fact, a mid-2020 survey found that respondents’ top financial regret was not having enough emergency savings to withstand the crisis — and this was true for every income group.1
A sudden job loss, an income reduction, and large unexpected expenses like medical bills and home repairs can be devastating for those who don’t have adequate savings. It’s generally recommended that households keep a cash reserve that would cover at least three to six months of living expenses.
Biggest Pandemic-Related Financial Regret
Source: Bankrate.com, 2020
Even if your financial situation held up fine in 2020, adding to your savings could help you avoid racking up debt the next time you face a financial challenge.
Here are some ways to build up your emergency fund.
- Divert a portion of salary. Determine how much income you can afford to set aside and transfer that amount automatically from your paycheck to a separate account.
- Track and control spending. Review your spending habits and look for the least painful ways to cut back, leaving a little more to stash away each month.
- Make the most of a windfall. Resolve to save your tax refund, quarterly or annual bonus checks, monetary gifts, and other unplanned income.