COVID 19:  Do You Have Financial Safety Net?

If you lost your major source of income today, how long could you finance all of your expenses before being forced into debt?  The potential financial impact of COVID-19 makes this one of the most important questions for everyone to answer. 

 
Why do you need an emergency fund? 
An emergency fund is money reserved for life’s unexpected opportunities and/or mishaps.   It therefore is best kept in a savings account, so there is no need to sell investments to access it.  Typically, it is recommended to have three to six months’ worth of your expenses.  However, in times of high unemployment and uncertainty, as is being experienced during the COVID-19 pandemic, it may take longer to replace your income.  A better target would therefore be to have at least nine months to one year in reserve.

If you are thinking, “Wow that is a lot!” Take it in bite-sized pieces. Aim for achieving enough in your emergency fund to cover one day, then a week, then a month, until you get to your target amount.   Here are the great benefits you can derive from having an emergency fund. 

•    The Bridge over Troubled Waters
Peta-Gaye’s scenario highlights the need for an emergency fund. After being unemployed for four (4) months Peta-Gaye was overwhelmed with living expenses and loan repayments.  During this time, she racked up her credit card and eventually decided to sell her car and move back in with her mother to reduce expenses and get some quick cash.     If she had an emergency fund she would have benefitted from: 
1. sufficient funds to cover expenses in periods of no income; 
2. avoiding on high-interest debt or emergency loan/s; and
3. maintaining financial independence.

•    The Opportunity Grabber
Shelly on the other hand, without breaking her investments, used her available cash to purchase Peta-Gaye’s car.  In so doing, she helped Peta-Gaye to get cash quickly and helped herself to a great discount. This illustrates some advantages of an emergency fund such as helping you to: 
1.    seize attractive opportunities in a timely manner; and
2.    protect you from having to sell your investments, especially in a down market.  

Your Emergency Fund 
Yesterday would have been the best time to have started or added to your emergency fund, but now is still a great time to get started or bolster your emergency fund. I challenge you to use these steps to help you get to your target amount: 
1.    speak with a financial institution, such as JMMB, to assist you in identifying your target amount, based on your individual circumstances;
2.    start small, if you have to, do not be deterred if  you have limited disposal income; 
3.    be consistent with your savings; 
4.    reduce any luxury items and/or guilty pleasures from your budget and buy  less expensive substitutes; and
5. identify other sources of potential income, using your expertise, skills and talents. 

Do you want to be financially prepared for any financial emergency or a great deal? Call JMMB at 876-998-JMMB (5662) or start adding to your emergency fund using alternate channels today.  You have nothing to lose but a lot to gain.