During difficult times, such as the coronavirus pandemic, many people are forced to take a closer look at their finances. Millions of people have lost their jobs and are finding it difficult to make ends meet. Some of these people have been making plans for situations like this, so they have an emergency fund to fall back on if needed. But, not everyone can tell when the situation needs you to dip into these savings. Sometimes, there are other alternatives you can take that will yield the same results as spending your emergency savings. So, in this article, we would show you 7 questions to ask before using your emergency fund.
Is this an emergency?
For many people, regardless of nationality, the coronavirus outbreak is a real emergency. A survey conducted by Prudential shows that more than 54% of the respondents are not ready to manage a disease that requires them to stay at home for weeks without working and with no other source of income. If you contact the virus, this is even a bigger emergency because you would be out of work for months until you fully recover.
Some companies have ordered staff to work from home, so their jobs are secure even if they won’t receive 100% of their monthly salary. Some people have also started freelancing jobs, so they have money to cover their basic needs. If you fall under this category, don’t touch your emergency savings.
Everyone has different rules for their emergency funds. What might be an emergency to you may not be to someone else, but there are cases where it isn’t really an emergency. Some of these cases include last-minute vacation opportunities, car maintenance, purchasing the latest gadgets, etc.
Do I have other resources to handle this expense?
If you have a job keeping you busy and bringing some money in, then your answer is yes. You have enough resources to handle feeding and having a roof over your head.
An alternative to this is using whatever cash you already had in mind for something else. Many people keep cash apart from their emergency fund for various purposes. For instance, people planning for summer vacation or holidays may save up cash for this purpose. So that they don’t have to dip in their emergency fund, they save it separately.
You shouldn’t have the money to travel and keep starving at home. Since you may not be traveling anytime soon, nothing stops you from using the money to settle the important expenses. If you have some money in your checking account for some other purpose, spend it.
If you don’t have a decent source of income, and there’s no cash lying around, there are still options out there for you. Various companies are assisting those in need most especially during the coronavirus pandemic. Banks are adjusting their payment plans on loans and also waiving overdraft fees. Even credit card companies have started permitting customers to defer payments.
There are various resources out there available to help you for free. So, you may not even need to take out of your emergency fund. Stay away from your emergency fund except there is no other viable option.
How much do I need to survive?
This is a case of revisiting your expenses and seeing if you got everything right. One of the questions to ask before using your emergency fund is how much you need to survive. For most people, they don’t need so much, except they are the sole breadwinner of a large family.
With such a crisis like the coronavirus outbreak where everyone seems to be going broke, you have to know how much need and how much you can still save from what you have. To do this, you have to return to your monthly budget.
From your budget, you should see the amount of money that is coming in and what you’re spending. Our budget template is broken down into various sections, so you should also see what categories you can cut off to save you more money.
If you’ve not been using a budget before now, get a sheet of paper and a pen. Then, write out your income on one edge. On the other, sum up your essential expenses such as buying groceries, paying bills, etc. On another end of the paper, sum up your discretionary expenses which include movie tickets, night out with friends, etc.
Your discretionary expenses are what you should cut off. With these out of your budget (at least until you’re financially stable again), you shouldn’t be worried about using your emergency fund.
Your emergency fund should always be a last resort.
Are there cheaper alternatives?
One of the first questions to ask before using your emergency fund is if there are cheaper alternatives to what you want to purchase. You are looking for a way to stretch your emergency fund as much as possible.
Even if you’re going to spend your emergency fund, you have to spend it wisely. So, looking for other more affordable options for what you need is important.
If you’re out of groceries and you take from your emergency fund or the cash you have left to purchase some, you can buy store-brand products instead of name-brand to save money. To lower your utility bills, limit your utility usage. Turn off things you don’t use. You’ll realize that what you have on you may be enough and you don’t need to touch your emergency fund.
What ways do I have to supplement my income?
Knowing if there are more choices out there to bolster your income is one of the things you should do before using your emergency fund.
As many people lost their jobs, several of them decided to look for other options to support themselves and their families, so they didn’t have to use their emergency funds.
Several businesses require freelancers now more than ever to keep their companies stable. You can find freelance opportunities on Freelancer, Fiverr, or Upwork that would pay decent fees you can use to take care of yourself.
Be careful when working on online platforms this period, so you don’t fall into the hands of scams or thieves that need your expertise but are not willing to pay.
Can it wait?
One of the important questions to ask before using your emergency fund is if it can wait.
There are things we feel are very important and we have to do them urgently. So, we quickly rush into our emergency savings to get some money. But in reality, that thing may not be as urgent as you thought it was.
There are purchases that we make that are important but not urgent.
For instance, because no one knows the day they’ll be let out of the house and allowed to continue their daily lives, you may want to stock up on groceries and everything you may need for months.
This is not bad. But if you don’t have enough money to purchase everything, you shouldn’t take out of your emergency fund. Instead, you should make a list of the most important things and buy them in average quantities. Getting excess of everything is just overspending, and you may only realize that after you’ve purchased them.
To avoid doing this, you can wait for 24 to 48 hours after you think about making that purchase. If you still have the strong urge to get it without any shred of doubt, go ahead.
When will you be able to replenish your emergency fund?
Everyone knows what they went through to get their emergency fund up to the level it is.
So, before touching that money, ask yourself how long it will take to get everything back. The answer to these questions varies depending on the kind of job you have (if you still have your job), what expenses you plan on cutting off your budget, and how you spend generally.
It could be a while before the coronavirus stops spreading rapidly. So, make sure you think well before you decide to touch that money. It won’t be so good if the real emergency comes and you have nothing to spend. If you strategize and plan your finances well, everything will go smoothly.