It’s a financial safety net that catches you when you fall: the emergency fund, a savings account stocked with funds you can access at short notice. Most financial advisors recommend keeping three to six months’ worth of living expenses in this fund in case you lose your job or have to make an unexpected repair to your home.
But as the second wave of the coronavirus sweeps through countries all over the world, does this standard still make sense? You may want to adjust your savings goal depending on a few key factors:
1. Your Risk Tolerance
Your emergency fund is the first of a series of safety nets that are in place to protect you when an unexpected emergency expense comes your way. It’s up to you to determine whether you’re comfortable using these other safety nets if you wind up not saving enough.
Are you willing to bet on the fact that the next safety net will catch you?
To help you make this decision, consider researching installment loans online. These installment loans provide you with the funds you need to handle an unexpected auto repair or personal expense you can’t ignore.
Unlike personal savings, they come at a cost. You’ll have to repay what you owe plus rates and fees, so it’s crucial you shop around to find the best options for your financial profile. Saving is always better, because especially when you’re in the middle of an emergency, you don’t want to deal with high-interest, short-term loans.
2. Your Country
An online installment loan may help you with an unexpected expense, but it was never designed to help you recover from the financial fallout of the COVID-19 pandemic. Millions of people lost their jobs as the world went into lockdown at the beginning of 2020, and many more jobs hang in the balance as the world experiences a second wave.
Where you live may factor into how much you want to save in your emergency fund. If your country makes good on their promises of stimulus checks, this may provide another safety net. You may get away with saving less than those people who live with no assistance from their government.
3. Your Job
If you work in a vulnerable industry, your job may be on the chopping block if it hasn’t already been pruned. Keep this in mind as you’re focusing on your emergency fund. You may have to cash-in these savings earlier than you expect if COVID-19 issues another wave of unemployment. It would work in your favor to have more in these savings than the traditional three to six months’ worth of expenses.
You may also want to bump your savings goal higher if you live on variable incomelike commissions, overtime, or tips.
There’s no black-and-white number that will work for everyone. How much you should save in an emergency fund depends on a lot of unique factors. Look to your job, country’s stimulus plan, and your risk tolerance to help you come up with a savings goal.
Ultimately, it comes down to finding a figure that helps you feel comfortable in the face of uncertainty.