A healthy emergency fund is an important barometer of good financial health. Having three to six months of monthly expenses saved increases the likelihood that you and your family will be able to handle an unforeseen expense, medical emergency, or change in employment situation. Typically, you do not see each of these types of emergencies happen all at once, but in the wake of the COVID-19 outbreak, many families are having their emergency funds tested by each of these happening simultaneously. With 40% of Americans having $400 or less in emergency savings and 3.28 million jobless claims, these are indeed trying times.
As the scope of the pandemic began to take shape, people started hoarding supplies as they had a sense of uncertainty of when and if they could venture outside their home. Humans, like financial markets, do not function well in times of uncertainty. According to Dr. Ali Fenwick, a human behavior expert, this similarity is partly physiological. In uncertain times, there are four reasons people feel the need to buy more goods than they would typically need: survival mode, the scarcity effect, herd behavior, and a sense of control. While these all have clearly been present to anyone who has ventured to the grocery store, it is the sense of control over your own personal supply that has been most evident. Humans have a need for certainty and having control over the amount of household items is how we cope with the present uncertainty in our society and financial markets.
Ensuring you have enough toilet paper, hand sanitizer, and food to manage prolonged time spent at home is no different than ensuring you have enough dollars safely tucked away to protect against unforeseen expenses. The key is to exercise sound logic and not emotion to determine if the expense is appropriate or something that can wait for better days. It also helps protect against utilizing credit cards or predatory lenders to stockpile resources. Both of which can have a negative impact on your financial health and make it harder to return to normal.
Remember, having a three month supply of paper goods is nice, but it should not come at the expense of nutritious foods or your ability to pay bills while waiting to return to a normal work schedule. Think of a properly funded emergency fund as the fresh fruits and vegetables that boost your financial wellness that are critical to increase your immunity in times like the current financial shock.
In a webinar last year, TCG explored how you can build a healthy emergency fund and what options are available to access dollars in uncertain times. In addition to growing emergency funds inside a traditional savings account, there are options that allow for you to access your retirement accounts that are explored in the webinar, though this typically should be used as a last resort.
While you are home more often, TCG encourages you to evaluate your budget and how you can begin to increase your emergency savings to provide more certainty to your financial health in the most uncertain of times. You can also schedule an appointment with one of our advisors who can help you develop a plan to improve your overall financial health and help position yourself for long-term financial security as our lives begin to normalize.