Please ensure Javascript is enabled for purposes of website accessibility

I'm Padding My Emergency Fund Because of COVID-19. Here's Why You Should, Too

By Maurie Backman - Mar 18, 2020 at 6:04AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Now's a really good time to have extra money in the bank.

COVID-19 is turning the world upside down. The stock market has crashed. Schools are being forced to close nationwide. Small businesses are shuttering, and countless Americans are losing their paychecks, at least temporarily.

And the worst of it? We don't know how long this situation will last. It could be weeks, or it could be months, before things start getting back to normal, which means millions of Americans are effectively in limbo. And the longer this situation continues, the more our country risks crossing the line into a full-blown recession.

Glass labeled emergency savings jar filled with bills

Image source: Getty Images.

It's for this reason that I'm aiming to boost my emergency fund in the coming weeks. And if you have that option, it pays to do the same.

Your emergency fund could save you

It's too soon to tell whether our current situation will lead to a recession, but frankly, things don't look good right now. Millions of Americans are being forced out of work for the time being, which means spending will decline and businesses will suffer. If we're able to contain COVID-19 to a reasonable degree in the coming weeks, we may be spared a recession. But health officials are now warning that we could remain at a standstill through the summer, which should ring a warning bell.

That's why I'm changing my financial strategy in the coming weeks. Initially, my plan was to use the bulk of my spare earnings to increase my stock investments. The one good thing about a bear market is that it provides an opportunity to buy quality stocks at a discount, and in the long run, that's a good way to make money. But I also don't know how my income may be impacted if a recession hits, and so I'm now planning to put some money into stocks, but also put a fair amount of my earnings into savings. That way, if my income takes a hit later on, I'll have more cash reserves to tap as my bills continue to come due.

Of course, not everyone will have an opportunity to save money in the coming weeks. Some people are already without an income. Others may have to spend more to stock up on food and supplies, leaving them with little money left over. But if you have the option to pad your emergency savings -- say, you're still collecting your full paycheck and are spending less now that you're hunkering down at home -- then you'd be wise to do so.

Under normal circumstances, an emergency fund with enough money to cover up to six months of living expenses will generally suffice. But these aren't normal circumstances, so my advice is to try to sock away nine months' to a year's worth of living expenses if you can. And trust me, I know it's a very big "if." But if you're able to do so, you'll have an easier time sleeping at night as we navigate these uncertain times.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
317%
 
S&P 500 Returns
112%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/30/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.