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Here's Why I Stockpile Cash in the Bank

By Maurie Backman - Mar 14, 2020 at 5:18AM

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Hint: It's not just for emergencies

In case you've been living under a rock, our country is deep in the throes of a major health crisis, and it's likely that most people will feel the impact of the COVID-19 coronavirus one way or another. The stock market has been tanking over the past few weeks and portfolio values have been following suit. Not only that, but school districts are threatening to close, colleges are moving classes online, and major events are being canceled in an effort to limit the spread of a virus whose unknown nature makes it all the more frightening.

It's during times like these that I'm really thankful to have a pile of savings in the bank. Here's why.

Stacks of 20 dollar bills


1. My work schedule could get interrupted

As someone who's self-employed, I only get paid for the work I do. If schools close down for weeks at a time, I won't have access to child care and my output is apt to decrease substantially.

Thankfully, I have some money in the bank that will help my family absorb a potential hit in income without struggling too badly. We may need to cut back on things like leisure to compensate, but I figure that if things are so bad that local schools are actually shutting down, we're probably not going anywhere anyway.

2. Now's actually a good time to buy stocks

When the stock market is experiencing a bout of volatility, your inclination may be to stay away. But here's the silver lining to downturns: They offer a key opportunity to buy quality stocks on the cheap, which is something I've been trying to do in the past few weeks.

Always have emergency savings

The COVID-19 health crisis represents a rather extreme situation that's far from the norm. But here's what you should take away from it: You never know when your lifestyle -- and income -- will be suddenly disrupted. And having money in the bank is a good way to ease your stress at a time when everything else seems to be falling to pieces.

There's been talk that the coronavirus pandemic could lead to our next recession. Will that happen? Possibly. And the longer that recession lasts, the greater your chances of losing your job or some of your income, thereby creating a scenario where you need cash reserves to keep up.

Another thing that happens during a recession? Stock values stay down for an extended period of time. That's a good thing and a bad thing -- good in that it gives you an opportunity to invest on the cheap if you have the money for it, but bad if you don't have money in the bank and instead need to liquidate investments at a loss to pay your bills.

As such, let this latest crisis serve as a lesson: Always have money in the bank. At a minimum, you should make sure to have enough cash to cover three months of living expenses, and ideally, more like six months' worth. Personally, I like to sock away a bit more than six months' worth of bills because being a self-employed worker who isn't entitled to paid time off, I need that extra cushion. I also like to keep an extra pile of cash in a separate savings account that I can use to invest in stocks when market conditions are prime for it -- such as during a downturn.

Building savings isn't something that happens overnight, so if you're currently without any, get through the current crisis, but then start cutting back on spending to amass a little safety net. It'll come in handy in more ways than one.

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