How to create an emergency fund, even during a pandemic
LEXINGTON, Ky. (WKYT) - 2020 has been a difficult year for millions across the country. Many have found themselves out of work with little to fall back on financially. Creating an emergency fund is imperative regardless of good or bad times. Independent financial planning advisor Josh Smith of Strategic Wealth Designers says it’s imperative to change your spending habits to put a safety net into your monthly financial situation.
“Every person who comes through our door, we want to see them holding 6 months of their typical monthly spending budget in cash. It may not happen instantly but we work hard to get folks to shift the way they think about safety,” Smith says. “It might be the car breaks down, a child gets injured in a sport and the medical bills soar or like in 2020, a lot of people have been laid off from their positions due to the pandemic. Whatever the cause, putting away cash to account for the unexpected is critical.”
The pandemic has seen a landscape shift of where Americans are spending their resources. Long term it will also impact the job market. Some positions will return quickly when deemed safe, like live events for example but others will be eliminated completely as the demand is no longer there. To ensure a robust emergency fund going forward, start with paying yourself first. Smith says before you spend anything, make a budget and pay yourself first each month, 10% would be ideal but start at 5% if necessary.
“So often we pay this bill and that bill, then we eat out, then we buy a gift for a birthday or special occasion and the next thing you know there’s a week to go in the month and all the income has been spent,” Smith says. “If you flip your financial allocation on its head and instead of seeing what’s leftover at the end of the month to save, start the exact opposite and take that money out before you ever spend a dollar. This drastically changes how much you have saved and how much you end up spending each month.”
If someone has been laid off, it can seem like a daunting task to build up a nest egg. As a new job search begins, Smith advises looking for things that can be cut out of the budget that are ‘extras’. Cable TV could be a great place to start, eating in, instead of eating out is another option. If the family has several phone lines, cutting back on the kids' lines for a couple of months to get through could be a good option. Subscription services of any kind should be examined and considered for the chopping block until an emergency fund has been established. To see more business or financial news for the Indianapolis viewing area visit https://WKYT.com/MoneyMatters and if you have a question for Josh send an email to firstname.lastname@example.org.
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