coronavirus / emergency fund / emergency preparedness / savings

How to build an emergency fund in the midst of an emergency

Now is not the time to stick your head in the sand and bemoan your situation! You are not alone.
National surveys by the Federal Reserve have found that many households would struggle to handle an unexpected $400 expense.

Writing for The New York Times, Ann Carrns provides this helpful advice from finance experts:
Even small cash cushions can help people stave off disaster. As little as $250 can significantly reduce the risk that a family will miss paying a utility bill or be evicted. “Each extra dollar saved” reduces the likelihood of having to skip bill payments.

First, try to estimate your expected future income. Talk with your employer but recognize the situation is changing rapidly.

Next, take stock of possible sources of cash and credit. Don’t open new credit card accounts, but knowing the credit limit on each card you already use to get an idea of what you can draw on if needed.
Even though the federal tax filing deadline has been delayed, if you expect a tax refund, file now and use this money to start your emergency fund. (The average refund is about $3,000).

Scrutinize your spending, and cut where you can, even if you are still fully employed. Can you cancel subscriptions, switch to a less expensive cellphone plan for a few months or negotiate a lower rate on your internet? (My husband reduced our internet monthly charge from $69 to $40 this morning.)
Direct these savings to your emergency fund in an online savings account.

If your situation is dire, consider temporarily reducing contributions to your retirement account and redirecting the money to an emergency fund. A cut is better than stopping contributions entirely.

If you own a home, you could consider opening a home equity line of credit as a financial backstop.

Check with your employer to see if they offer emergency loans.

“Many companies allow hardship withdrawals or loans from 401(k) retirement plans, but doing so puts your long-term retirement savings at risk. Hardship withdrawals don’t have to be paid back but are taxable as income and may result in penalties. Loans aren’t taxable but must be repaid, and they can be risky because if you leave your employer you generally have to repay the loan quickly, said J. Michael Collins, director of the Center for Financial Security at the University of Wisconsin-Madison.”

Check out the New York Times Money Hub blog post and other related posts. Search for other savings options on this searchable blog. 
Source: Financial Planning for Women