Elizabeth Peavy-Tabor is a Dave Ramsey Financial Peace University leader and coach. She is a founding member of The Inspiration Lab, helping founder Stephanie Lanier dream up the idea many years ago. Elizabeth is a mom of a toddler and is a business owner with her husband. They own two businesses in Wilmington, Mosquito Patrol and Sahara CrawlSpaces. Below, Elizabeth discusses ways to take hold of your finances for emergencies… even while going through one.
The economic and health crises we are currently living through are unmatched to anything we have experienced around the world, in this country, and most definitely in our own households ever before.
If your finances have been impacted during this time, you’re probably stressed in a whole new way. You are not alone. Millions of people are struggling with job loss and finding new ways to make ends meet. There is nothing worse than feeling like you don’t have a plan in the midst of a crisis. The good news is that times like these can also be a catalyst for sea change. Whether it’s a “I will never be without toilet paper again” type of change or recognizing just how badly you want to be out from under debt, use this time to make a new plan for you and your family that provides you more financial peace.
The easiest way I know to ease financial hardship is with an emergency fund. This is a stash of cash specifically for when, not if, things go wrong. It’s money stored to cover a rent or mortgage payment in case of loss of income. It’s money to draw from if you find yourself running short or have an unforeseen expense come up. My favorite part of an emergency fund is that you can use it guilt-free, unlike reaching for a credit card.
But what if you’re living through all of this and don't have rainy day savings to help you get by? To start, make the decision that you will never be without an emergency fund again. This goal just became a top priority in your life!
As soon as your income goes back to “normal,” begin planning to save three to six months’ worth of living expenses. Know the exact number you’ll need to give yourself a sense of peace. If your job history and industry in general are typically stable, you may only need three months of living expenses set aside. If you are in a more up-and-down situation and potentially experiencing more life changes ahead, plan for six months. A few tips for building your emergency fund:
Be realistic about how much time this takes, but also tackle the task with speed.
Throw every extra dollar you can at your goal.
Cut unnecessary expenses for a few months to gain momentum.
Sell things around your house — like clothes, old furniture, and toys — to go toward the fund.
If you get a tax refund, stimulus check, or any additional windfall dollars throughout the year (and don’t need them to run your household immediately), put that money in your new emergency fund.
Keep these dollars in a traditional savings account; this is not a place to worry about returns and interest.
If you’re struggling to make ends meet right now, an emergency fund may sound like a distant dream, and that’s okay. I still encourage you to start planning how you’ll get there when the time is right. But for the time being, shift your focus to the four pillars of any household: food, shelter, transportation, and utilities. Things like long-term savings, extra spending money, house projects, or even debt payments should be paused until your income becomes stable again. Many lenders and creditors have programs in place to help ease the pain right now, so seek them out.
It’s also invaluable to know your household numbers forward and backward. Know exactly how much you’re bringing in each month, even with the help of unemployment dollars, and know exactly how much your output is. This way you can identify exactly how to direct your funds to the four pillars and clearly see where you fall short and need to stop spending.
Start planning today how you will handle future rainy days (or monster storms), which we now know could come with only a moment's notice. Remember: The antidote to anxiety is preparation.
Elizabeth Peavy is not a lawyer, CPA, or CFP. These are only her opinions and not meant to be legal or investment advice.