Times are tight for many people at the moment. With unemployment set to soar throughout the world, how prepared are we for such unforeseeable events?
Whilst most people’s knowledge of global pandemics typically stems from Hollywood, front page after front page has enlightened all of us somewhat, if not to the level of a fully-qualified epidemiologist.
But how many of us had a rainy day fund on which we are now relying? And if not, when is the right time to start saving into an emergency fund?
How much are we saving?
An annual survey by GOBankingRates found that in 2019 more than two in three Americans had less than $1,000 dollars in savings. With many people expected to eat into their savings to get through this difficult time, it’s likely that this situation will get worse.
But pandemics don’t come along too often, so why should this be a cause for concern?
Pandemics may be rare, but even if you budget down to your last cent, there will always be unexpected costs on the horizon. Your car breaks down, you have a medical emergency, your cat gets sick – finding money to cover these costs can be worrying.
Burying your head in the sand and hoping it’ll never be you is not a sensible way to approach your finances.
As the Scouts says, be prepared.
How to start saving
With many people already struggling with their finances, putting a pot of money aside and depriving yourself of its use today may seem a barrier to saving that is too big to overcome.
Websites such as Martin Lewis’ MoneySavingExpert offer great tips on how to save, but can be daunting to the uninitiated.
A good way to think about it is to set yourself a target, let’s say $1,000 within 12 months. The thought of getting together $1,000 right now may be scary for some, but if you break it down, it’s $2.74 a day.
To put that into context, a tall latte from Starbucks is $2.95. If you’re currently buying a coffee a day, can you sacrifice this for a year to achieve over $1,000 in savings for that rainy day fund?
Foregoing a Starbucks is a good way to start saving your first $1,000, but many experts suggest that at least six months worth of expenses are needed. To achieve that, some drastic cost-cutting measures may be required.
There are many ways to start saving fast today, such as using budgeting tools, sacrificing cable, booze, and the gym, and using cashback websites such as Ibotta (US) and Quidco (UK).
Where to put your savings
In the bank? Invested in shares? Under your mattress?
An emergency fund must be quickly accessible (i.e. liquid) so when that unexpected event occurs, you can deal with it promptly.
Your first $1,000 should be put into a high-yield savings account. Savings beyond that will depend on the level of risk that you’re willing to take.
The higher the risk, the higher the reward, as well as the increased chance that you could lose it all. Remember, this is a fund for emergencies, so a middle-ground must be struck.
There you have it – some tips and tricks for how to start your rainy day fund, and what to do with it once you’ve got the ball rolling.
If the thought of checking your balance is filling you with dread, bite the bullet, and get saving today.