The Coronavirus And Emergency Funds

Understandably, the coronavirus pandemic has a lot of people worried.

Topping the list of worries is jobs and the economy.

I’ve seen and heard plenty of commentary about investing, the stock market and whatnot, but very little about saving.

Sure, it’s nigh impossible to save now, as society shuts down and money is scarcer, but what about before? Could it have been possible to save in anticipation of an event such as the coronavirus crisis?

Why yes! There’s something called the emergency fund. Though it seems to be rarer than King Arthur’s magical sword, it actually exists!

What is this ‘mythological’ item, the financial equivalent of Excalibur?

According to Investopedia’s Daniel Kurt, an emergency fund is:

“…a readily available source of assets to help one navigate financial dilemmas such as the loss of a job, a debilitating illness, or a major repair to your home or car. The purpose is to improve financial security by creating a safety net of cash or highly liquid assets that can be used to meet emergency expenses, as well as reduce the need to draw from high-interest debt options, such as credit cards or unsecured loans-or undermine your future security by tapping retirement funds.”

Methinks the coronavirus qualifies as a ‘debilitating illness.’

In the sake of simplicity, I will treat an emergency fund as money from checking or savings accounts, separate from retirement ones. It’s more efficient and easier to understand the idea of having money rather than assets in a crisis.

Financial experts recommend that you should have 3–6 months of expenses saved in said fund. Of course, not nearly enough Americans do. According to a 2019 Bankrate survey, 28% of Americans have nothing saved at all. 25% do have a ‘rainy day’ fund, but it wouldn’t last for three months. 18% could live off savings for six months. That’s not even 1 in 5!

Saving isn’t sexy. There’s no ‘savings’ equivalent of The Wolf of Wall Street, such as The Squirrel of Main Street, in which Leonardo DiCaprio earns a solid middle class living, setting aside money for his children’s college and living within his means, forgoing the strippers and drug fueled binges. It’s much more fun and sexy to play the stock market, hoping for the next big thing, or blow your paycheck on a new toy than to save. Americans are quite good at first two, and not so much at the second.

What the coronavirus shows you is that crises happen, and it doesn’t take long for them to wreak financial havoc. J.P. Morgan Research forecasts that ‘the unemployment rate for developed markets as a whole will rise 1.6 percentage points in the next two quarters’, with its rise being ‘sharper’ in the United States. They find a global recession likely. Small business will be hit especially hard. A fair amount won’t recover.

If you have an emergency fund, coronavirus and other crises are much easier to weather. Said fund doesn’t solve all your problems, but if you have 3–6 months to breathe, you can make more logical and thought out decisions. You can keep food on the table, a roof over your head and your car running, regardless of what government, your job, your landlord or your bank does or doesn’t do.

I am by no means perfect- I need to re-evaluate my savings as well. I have prioritized short-term satisfaction at the expense of long-term financial stability. Granted, I didn’t buy a mansion filled with supermodels and coke, but one too many video games and too much eating out takes its toll.

We need to increase the percentages of Americans with emergency funds. That would be a step in the direction of financial literacy. Personal finance education needs to become mandatory at all levels and ages.

You can take some small steps almost immediately!

1. Write down your monthly budget, if you don’t already.

2. Track expenses and income. Seeing them on paper changes spending. Believe me.

3. If you have no emergency savings, set very small, incremental goals. For example, “I want to save $50 every paycheck.” By only saving $100 per month, you will have 1k in under a year!

4. Get to $500 or $1000 as soon as possible. It may not seem like a lot, but you can cover some big expenses, such as a car repair or groceries for several weeks with that much.

5. Saving will become a habit, and the money being set aside won’t bother you. Reward yourself for a job well done with a small treat, such as a nice meal, going to the movies or a new video game.

No wild stripper and drug filled parties though. We aren’t Jordan Belfort.

Hopefully, when the next crisis hits, whether it be medical, financial, political or anything else, emergency funds won’t be as rare as Excalibur but as common as our big screen TVs.

Maybe I should starting pitching Hollywood on The Squirrel of Main Street…

Originally published at https://theprimacyofpolitics.blogspot.com.