Now, as the health crisis seemingly wanes, 51% of Americans said having an emergency fund is now a higher financial priority than it was before Covid, according to a survey from financial services website Personal Capital. The survey of more than 2,000 American adults was conducted online by The Harris Poll for Empower Retirement between March 23 and April 5. It also made many reconsider their personal finances.
“I think the pandemic really highlighted for a lot of people how important it is to have an emergency fund,” said Michelle Brownstein, a certified financial planner and senior vice president of Personal Capital’s private client group. “I think a lot of people were put in a very tough financial position, to put it nicely.”
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How much to save
While everyone’s financial situation is different, experts recommend having at least a few months of living expenses, such as rent, utilities and necessities, in an emergency savings fund.
“Our general rule of thumb is that you should have three months to six months of expenses in cash savings at all time,” said Brownstein, adding that the exact amount is based on individual preference.
For example, if you’re part of a two-income household where both people have steady employment, three months of expenses in savings may be enough. But if your situation is more volatile, like you’re self-employed or make most of your money from commissions, you may want to have more in savings, she said.
Ways to save
“You have to decide how much risk you’re comfortable taking,” said Tania Brown, a CFP and coach at SaverLife, a nonprofit focused on saving.
Of course, some people may find it difficult to save, especially if they went into debt during the pandemic.
The first thing people should do is make sure they have the basics covered, such as food, rent and other necessities. Then, they should plan to rebuild savings, even if it will take some time.
“I may be slow, but it’s OK,” said Brown. She suggested that families earmark any excess in their budget — even if it’s $5 per week, or month — just to get started.
This is a perfect opportunity to really establish a firm financial foundation.
coach at SaverLife
For many, the goal of having three months of expenses saved seems insurmountable and may keep them from starting at all, said Brownstein.
“Start below what you think is comfortable — like, really easy — and then slowly bump it up,” said Brown. Making an attainable savings goal sets you up for success and helps you build a good savings habit.
Another good way to begin saving post-pandemic is to work against lifestyle creep, which is increasing your budget as you return to work or make more money.
“Putting it off is only delaying getting there,” said Brownstein.
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