How to create an emergency savings fund in wake of COVID-19Submitted by Farrall Wealth on March 30th, 2020
If the Coronavirus’ effect on the markets has taught us anything, it’s that every single person reading
this should start the process of creating an emergency fund. This is not just an idea, nor is it a savings
account, but rather, it is a separate pool of money to only use in emergencies. So, how do you even start
the process of creating an emergency savings fund?
1. You should look to have a conversation with your local financial advisor on your specific needs. A good rule of
thumb is to have at least three months of income saved in your emergency fund in case you
need it. This will allow you to continue to pay off bills or other expenses if you lose your job or
need to take an extended leave in case of medical or family emergencies.
2. During this conversation, you can start to structure your savings to ensure that your savings and
emergency fund goals are met. For instance, if you had $500 for savings per check, you can put
$100 in your emergency fund, $100 in your savings and $100 in your 401(k).
3. You should look to continue to build your savings over time and keep a dedicated emergency
fund. Most banks now allow automatic withdrawals to other accounts, which makes saving even
more effortless! Make sure to continue to make regular contributions, and your savings and
emergency fund will grow over time.
4. As your current situation changes, continue to check-in with your financial advisor to see if you
need to change your existing structure. You may need to change the amount of money you are
putting in, and these adjustments are easy to make on the fly. One thing to note, once your
emergency fund is filled, you can start to filter that money into other savings vehicles. This will
allow you to meet your savings goals faster without changing your current situation or lifestyle.
5. Finally, you can also use other income that comes in during the year to help build your
emergency fund even quicker. For instance, you may run into some extra money from a side gig
or have an unexpected bonus come in. Why spend this extra income, when you can utilize it to
top-up your emergency fund and meet your saving goals even faster!
The long-term effects of COVID-19 are unclear, so the time to create your emergency savings fund is