Emergency Fund: Key to Surviving the Pandemic
In the face of the global Covid-19 outbreak, many experienced financial crises due to lagging income, decreasing wages, or worse, layoffs. Many even had to pull out savings or rely on bonuses that used to be allocated for holiday travels, Christmas and Eid pleasantries. The situation led us to be wary of our income and spending, and led us to the importance of an emergency fund.
So, how are we supposed to manage out emergency funds during a pandemic? Here’s a brief explanation:
- Learn the Current Condition of Your Finances
It is important for us to know the exact amount of monthly expenses and income. By knowing our current cash flow it’ll be easier to determine how much money we can set aside for various purposes, such as saving, investing, and preparing emergency funds. To make it easier, you could make use of a daily cash flow to note your spendings and saving.
2. Determine the Amount of Emergency Fund You Must Prepare
If you are single or living alone, it is advisable to prepare an emergency fund equivalent to three-six times of your monthly expenses. However, for those who are married, having a saving equivalent to six months expenses is much preferred. Setting this fund is also quite simple, you only need to set aside 5 percent to 10 percent of your monthly income on a regular basis.
3. Open a New Special Account for Emergency Funds
After determining the amount of emergency funds that should be set aside for the future, what you should do next is to open a new account that is devoted to your emergency fund savings.
The purpose of opening a new account is to set a separate account from your usual income and spending. That way your emergency fund budget will not be diverted to finance other needs.
Then where should we save emergency funds? Is it wise to save it in an investment instrument so that its value can increase? The correct answer to that question is in investments that are liquid such as bank accounts or money market mutual funds. Therefore, when you need it, you can liquefy it quickly.
4. Start Slowly
A general rule of thumb for saving an emergency fund is patience. You might be terrified of what the future holds or even worry if by splitting your monthly expenses could hinder your lifestyle. However, by slowly and consistently setting aside money, it will eventually build up and pave the way to a more secure future.
Therefore it’s important to keep a cool head and don’t let fear engulf you when you start this account fund.
5. Cut Down Your Expenses
The final step is to reduce your expenses especially on matters that are not urgent and not important.
Prioritize your expenses for needs that must be fulfilled or paid in advance. You must prioritize expenses for basic necessities, such as food and drink, to save money for children’s education.