30% of Americans Learned This Important Lesson From the Pandemic
by Maurie Backman | Published on Sept. 2, 2021
Many people have recognized the importance of making one key financial move.
One of the most shocking things about the coronavirus pandemic was how quickly the health and economic situation deteriorated. In February of 2020, most people were going about their normal lives. By March, cities were shut down, people were isolated at home, and jobs were being lost by the millions on a weekly basis. It was a scary time and one that a lot of people weren't prepared for.
Now that things aren't quite as dire on the pandemic front, we can all take a step back and acknowledge that while the past year wasn't easy, it was definitely a learning experience. And one lesson that 30% of Americans learned was the importance of having an emergency fund, according to Northwestern Mutual's Planning & Progress Study.
If you're without emergency savings, it's important that you make building some a priority. That way, you'll be better prepared the next time a major disaster hits home.
What should your emergency fund look like?
The purpose of an emergency fund is to have cash at the ready in case of an unplanned bill your paycheck can't cover or to get you through a period of job loss. As such, it's a good idea to sock away three to six months' worth of essential living expenses in a savings account.
Now, if you're starting with no money in savings at all, it may take some time to amass a high enough balance to cover three full months of bills. In that case, do the best you can for now with the goal of eventually coming up with enough money to pay your bills for a quarter of the year should the need arise.
Of course, you may be thinking that three to six months' worth of living expenses isn't really necessary. After all, doesn't unemployment kick in when you lose your job?
In many cases, it does. But if you're self-employed, you're normally not entitled to unemployment benefits if you find yourself out of work. The only reason self-employed people have gotten benefits over the past year is because special programs were put into place due to the extreme nature of the pandemic and economic crisis it caused.
Furthermore, during periods of high unemployment (such as over the past year), people collecting jobless benefits can generally get those payments extended beyond the normal expiration date. But in more regular times, unemployment benefits max out at six months. This means that if you lose your job when there isn't a widespread unemployment crisis, you may not be in line for as much aid as you'd think. And that's why saving three to six months of living expenses is so important.
How to eke out money for your emergency fund
Coming up with the money to fund your emergency savings isn't easy. If you're not sure where that cash will come from, you can try:
- Following a budget that leaves you with enough room for regular savings
- Cutting back on a few specific expenses (say, canceling a gym membership or dumping a cable plan)
- Getting a side hustle and putting earnings from it into savings
- Banking all extra funds you receive, from your tax refund to any extra cash you might come into (if you're a parent, you may be in line for monthly payments under the newly expanded Child Tax Credit)
If there's one thing the pandemic taught us, it's the importance of being prepared for an economic catastrophe. Having a solid emergency fund could spare you a world of stress and heartache the next time a disaster strikes -- whether it's one that hits you personally or impacts the country as a whole.
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