What To Do If You Have No Emergency Savings?

The coronavirus pandemic continues to take a toll on Americans’ finances.
Unemployment remains above pre-COVID-19 levels as many businesses are unable to operate as usual. A second stimulus package is still up in the air. Meanwhile, the emergency reserves of many American households are dwindling.
A recent Bankrate survey showed that almost three times as many people are saving for emergencies now than they were before the pandemic. Additionally, 21% of Americans say they have no emergency savings at all

Revise budget

When your savings run out and you need to make money last, start looking for places to save. Then revise your budget.

Andrew Westlin, senior financial planner at Betterment, recommends ruthlessly cutting unnecessary expenses. This could include dining out, cable TV, subscription services, or other purchases you could live without.
Also, look for ways you can reduce the fees you have to pay. For example, shop around for home insurance and auto insurance to find better deals. Or consider sticking to simple “beans and rice” food tours for now.

Use fintech apps

Consider whether a fintech app could help you manage your money better – whether by helping you track your spending or by making sure the money you earn goes where you want it.
You can use these apps to set custom goals, analyze your spending and automatically start saving for you.
“Thinking about saving will take some of the stress out of you, and I think you’ll be surprised how quickly you can rebuild your emergency fund,” says Michaela McDonald, CFP, financial advice specialist at fintech app Albert.

How much is enough

If you’re single, three to six months of living expenses is a good goal for an emergency fund, says MacDonald. However, when adding a spouse or partner to the mix, try to save it for the higher end of the range.
After you have a baby, MacDonald recommends keeping about 9 to 12 months of living expenses in your emergency savings account.

“Remember to factor in the larger annual expenses for your family, such as annual check-ups, tuition, sports fees, etc.,” she says

Unlock valuable resources

If you’re on the brink of financial disaster and need a way to get some cash to stay afloat, you may want to consider some options as a last resort. For example, Westlin said the CARES Act makes it “easier” to withdraw from IRAs and employer-sponsored retirement accounts because you won’t have to pay the 10% early withdrawal penalty on withdrawals before age 59½. However, you must pay taxes on the money you withdraw from your tax-deferred retirement account, and you must meet certain requirements from the IRS to qualify for this option.

Westlin also suggests that unless you have no other choice, it’s wise to stay away from your retirement accounts.
If you own your home, a home equity line of credit (HELOC) may help, says Ivan M. Nalibotsky, a financial advisor with Regal Financial Group. This type of line of credit allows you to borrow money against your home equity. It can come in handy as a flexible lending mechanism in case your savings run out and you need quick access to cash.
Keep in mind that you can typically only borrow 85% of your home’s value with first mortgages and home equity products, according to the FTC. Therefore, you need to have substantial assets in your home to consider this option.

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