Step 3: Create a reasonable emergency fund
A safe-to-spend number won’t work well for everyone, especially if you don’t have a stable, predictable paycheck.
Take the couple identified as Becky and Jeremy Moore (their real names were changed for privacy’s sake), whom the authors Jonathan Morduch and Rachel Schneider followed for months for their book “The Financial Diaries.” Jeremy, an Ohio-based long-haul truck mechanic, earned most of his salary in the summer and winter months when the weather was bad and trucks would get beat up. When it was more temperate, he took home as little as $300 a week. And the couple is not alone: About half of households, according to a 2015 Pew Charitable Trust study, see at least a 25 percent gain or loss of income from one year to the next.
Financial planners would say the Moores should simply dip into their emergency fund (a pot of money consisting of six months’ worth of essential expenses in a savings account) when times get tight. But this commitment can run into the tens of thousands and is a nearly impossible feat for families with volatile earnings, and difficult even for higher earning households.
If you can’t save up for an emergency fund, try just saving a regular percentage of your paycheck (or any windfall, like a tax refund) in a checking or savings account to help you smooth over income spikes and dips throughout the year.
The Coronavirus Outbreak ›
Frequently Asked Questions
Updated July 27, 2020
Should I refinance my mortgage?
- It could be a good idea, because mortgage rates have never been lower. Refinancing requests have pushed mortgage applications to some of the highest levels since 2008, so be prepared to get in line. But defaults are also up, so if you’re thinking about buying a home, be aware that some lenders have tightened their standards.
What is school going to look like in September?
- It is unlikely that many schools will return to a normal schedule this fall, requiring the grind of online learning, makeshift child care and stunted workdays to continue. California’s two largest public school districts — Los Angeles and San Diego — said on July 13, that instruction will be remote-only in the fall, citing concerns that surging coronavirus infections in their areas pose too dire a risk for students and teachers. Together, the two districts enroll some 825,000 students. They are the largest in the country so far to abandon plans for even a partial physical return to classrooms when they reopen in August. For other districts, the solution won’t be an all-or-nothing approach. Many systems, including the nation’s largest, New York City, are devising hybrid plans that involve spending some days in classrooms and other days online. There’s no national policy on this yet, so check with your municipal school system regularly to see what is happening in your community.
Is the coronavirus airborne?
- The coronavirus can stay aloft for hours in tiny droplets in stagnant air, infecting people as they inhale, mounting scientific evidence suggests. This risk is highest in crowded indoor spaces with poor ventilation, and may help explain super-spreading events reported in meatpacking plants, churches and restaurants. It’s unclear how often the virus is spread via these tiny droplets, or aerosols, compared with larger droplets that are expelled when a sick person coughs or sneezes, or transmitted through contact with contaminated surfaces, said Linsey Marr, an aerosol expert at Virginia Tech. Aerosols are released even when a person without symptoms exhales, talks or sings, according to Dr. Marr and more than 200 other experts, who have outlined the evidence in an open letter to the World Health Organization.
What are the symptoms of coronavirus?
Does asymptomatic transmission of Covid-19 happen?
- So far, the evidence seems to show it does. A widely cited paper published in April suggests that people are most infectious about two days before the onset of coronavirus symptoms and estimated that 44 percent of new infections were a result of transmission from people who were not yet showing symptoms. Recently, a top expert at the World Health Organization stated that transmission of the coronavirus by people who did not have symptoms was “very rare,” but she later walked back that statement.
This type of emergency fund is easier to achieve than the traditional six-month fund for a few reasons. You don’t need to save as much money, because the goal is to level off temporary income dips rather than cover half a year of necessary spending.
And according to Sharif Muhammad, a New Jersey-based certified financial planner, since you’re saving for something tangible (lower-earning months that you know will arrive), rather than an undefined, unknown terrible event, you may find motivation easier to come by.
Step 4: Save the money that you’re not spending
With vacations canceled, bars closed and gyms out of the question, you’re probably spending less money than you were pre-Covid. Most people have pared back their swiping. Chase credit card customers, for instance, are charging about 10 percent less than they did a year ago. Fewer available ways to spend money can ultimately be a good thing. Nearly 70 percent of credit card borrowers, according to CompareCards.com, are totally confident they’ll pay off their balance in full this month, an almost 10 percentage point increase from this time last year.