How to Budget During an Emergency and Create an Emergency Fund

An emergency fund can come in handy when you run into an unexpected financial situation, whether you have to pay a medical bill or lose your job. Creating a budget from scratch can also help you be prepared for an emergency or adapt your spending during one. Let’s dive deeper into how to build an emergency fund and create an emergency-ready spending plan when you’re struggling financially.

What is an emergency fund?

An emergency fund is money that you set aside for any unexpected financial expenses or situations that life throws your way, like a car repair, medical bill, or unemployment. With an emergency fund, you can get through financial downturns without having to take out loans or go into credit card debt.

How much do I need in an emergency fund?

You should typically have enough money in an emergency fund to cover three to six months’ worth of living expenses. This money should be used to cover the bare necessities, like rent, bills, and groceries.

How to create an emergency fund

Here are some steps you can take to build an emergency fund:

1. Calculate how much you need to save

Take a look at what your basic living expenses are each month. This will help you figure out how much money you’ll need to cover expenses for three to six months.

2. Create a budget

A budget is a plan for how you’ll spend your money each month. Create a monthly budget that works for your financial situation and can help you reach your savings goals. Some common budgeting methods include:

• 50/30/20 budget: With this method, you’ll spend 50% of your monthly income on essential expenses like rent and bills, spend 30% on non-essential expenses, and put 20% toward your savings.

• Pay Yourself First: This method involves calculating what percentage of your income you need to save each month, and putting that money toward your savings before covering other expenses.

3. Automate your savings

Automating your savings can allow you to save money without thinking about it. You can set up direct deposits so that a portion of your income automatically goes from your paycheck into your savings account.

4. Reach your savings goals

Once you stick to your budget and contribute to your savings each month, you’ll start to see progress. If you can, keep saving money after you’ve saved up three to six months’ worth of expenses in your emergency fund. This can help you work toward other financial goals, like buying a house or saving up for your retirement.

How to budget during an emergency

With so much going on in the world, it can be tough to feel secure in your financial situation. You might be looking at a layoff in your family, reduced hours, or concerned about the future. Creating a new, adaptable budget specific to your current situation can help you feel more in control and prepared for the coming months. Let’s break down how to build an emergency budget into 6 easy, approachable steps.

1. Define Your Income

The first step in creating an emergency budget is to determine how much money is coming in each month. If you’re a gig or shift worker, that might not be such a simple task! You’re going to want to use the past month as an estimate and incorporate other factors: are you flooded with work, or have your hours been cut? Do the math and give yourself an average weekly rate. If you’re not sure what’s accurate, stay on the safe side and go with a lower estimate.

It’s also important to look at where there might be areas to make money. For example, could you tutor online? Could you find a remote work opportunity? This isn’t the time to set a plan in stone, but to brainstorm possibilities.

2. Make a three-month plan

Right now, when everything is uncertain, long-term financial plans might be hard to imagine. Instead of worrying about 5-year plans, it’s a good time to focus on making sure you’ll be safe and secure for the next three months. An attainable three-month goal is trying to exist on the income that is coming into your house right now, with anything else being a bonus. This might not be your ideal budget, but if you need to make tough choices, remember that rent, food and utilities are at the top of the list when it comes to weathering the storm.

This can also be a time to discuss your situation with any creditors. Could your landlord put a rent freeze on your place or reduce the rent while you’re looking for work? Could you get an emergency loan such as a payday loan or installment loan to pay essential bills? Having a few strategies in place can help you shore up your finances further while you work through your budget emergency.

3. Cut non-essentials

You may have money hiding in plain sight. Could you get a refund from your child’s dance classes or summer camp as your circumstances have changed? Maybe you could skip your favorite meal kit now that you have more time to cook or lower the data on your cell phone plan if you’re living off your home WiFi. Going over the last month of charges can cue you into expenses you may have forgotten about.

It’s also important to remember how the current reality has led to a new set of spending circumstances: No commuting means a lower monthly gas bill, and no on-site workdays means no money needs to be spent on work clothes. Download our quick expenses calculator to get a clear picture of what’s coming in and going out of your bank account each month.

4. See what relief you might qualify for

It’s important to remember that even though you might be facing tough circumstances, you’re not alone. Millions of people are in the same boat as you, with one in four Americans having either lost their job or seen their hours cut due to the pandemic. There’s no shame in admitting you need help, and using the resources designed for just that, to help.

First step if you’re unemployed: Filing unemployment. The process isn’t fun, especially with so many Americans on the phone waiting at the same time, but it could be a lifesaver. The Coronavirus stimulus bill makes unemployment even broader, so gig workers, part-timers, workers with reduced hours and self-employed people are all able to get this benefit. Even better, unemployment checks will be boosted by $600 a week, so be sure to apply ASAP. Learn more about expanded eligibility requirements and increased benefit amounts.

Find details about the unemployment insurance program in your state.

If you’re a sole owner of a small business, you may have loan options at your bank. You should also investigate what kind of protections are being passed on a more local level at your state or city.

Finally, if you find yourself unable to meet your financial obligations, let the people you owe — like your landlord or creditors — know about your situation. They may allow arrangements such as reduced interest fees or freezing your monthly rent. Plus, several federal, state, and local programs have suspended COVID-19-related evictions for anywhere from 30 to 90 days. See if your state is currently barring preventing evictions.

Learn more about additional rent and mortgage assistance offered by various social service agencies. The lesson: You won’t know until you ask.

5. Create a grocery list that lasts

Of course, now’s not the time to panic shop, but it’s smart to be strategic about what’s in your pantry. Assess what you have, make sure nothing is expired, and come up with a long list of meal ideas and ingredients before heading out. If your grocery store is missing your favorite staple ingredients, Google around for some clever substitutes—with all the fad diets on the internet, there are a hundred delicious cake recipes whether you’re missing eggs, flour, sugar or all three.

Buy what you need. Stockpiling on produce or other foods that don’t have a long shelf life will ultimately lead to overspending and throwing out food. Rather look for foods that have a long shelf life like dried beans, oats, and frozen vegetables and fruits.

Look for a coupon app like Grocery iQ and grocery specials—staying on top of those can lead to huge savings.

If you truly can’t make ends meet with your emergency budget, it may be worth seeing if you’re eligible for government assistance, such as SNAP or WIC. Local organizations, such as food banks and churches, may have what you need. Find details on your state’s food assistance program. Remember: They are set up to help people during hard times, so there is nothing wrong with using them in your time of need.

6. See what entertainment is available for free

As you’re cutting your budget, it’s smart practice to remember just how much you have. Cleaning out the closet can lead to forgotten treasures, like old board games and books. And if you’re looking for something new and cheap, your local library is a great place to start. If you don’t have a library card, activate an electronic card to borrow books, audio books, and videos. Check out our list of free and cheap ways to keep learning while you’re stuck at home for more ideas.

Due to the pause on live shows, lots of world-class performances are now streaming for free online. For example, many museums are offering “virtual tours,” and some singers are offering free livestreamed concerts. Broadway is offering free shows and the Metropolitan Opera is showing nightly streams. Google “free” and your favorite entertainment and chances are, you can find a great option.

The same goes for workout classes: More and more boutique studios and trainers are offering everything from yoga to kickboxing online. There are also lots of free workout videos on YouTube, and over 300 routines on Amazon. Sadly, that means there’s no excuse to slack off on your exercise routine while you’re home!

Start saving for an emergency now

An emergency budget doesn’t need to be painful. By taking stock of where your finances are right now, you can develop a plan to help you tough it out during hard times. And when things get back to normal, your enhanced budgeting skills will only help you save more and reach your financial goals more quickly.

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