Facing financial hardship? 7 questions to ask before dipping into your emergency savings

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The coronavirus is forcing nearly everyone to take a closer look at their finances.

Quite a few Americans are worried about making ends meet. Some consumers, however, do have emergency savings to tap into, if needed. The big question for these folks: What counts as an emergency?

Bankrate found in a recent survey that four in 10 Americans (41 percent) would cover the cost of a $1,000 car repair or emergency room visit using savings. But when it comes to COVID-19, whether it’s wise to use your emergency savings now or wait until conditions potentially get worse is debatable.

Here are seven questions to ask yourself before making a withdrawal from your emergency savings account and what to do if you don’t have enough saved for the unexpected.

1. Is this a true emergency?

For a sizable percentage of the U.S. population, the coronavirus presents a real threat. According to data released by Prudential, more than half of respondents (54 percent) say they’re not prepared to manage a contagious disease outbreak that requires quarantines and limits their ability to work for several weeks.

“If the spread of COVID-19 requires self-quarantines, you may be out of work for up to three weeks. If you get the virus yourself, that number may leap to three months,” says Jamie Kalamarides, president of group insurance at Prudential. “These are the scenarios that might require you to dip into your emergency funds.”

But if you’re comfortably working from home, your job is fairly secure and you have enough money to cover basic bills and expenses, then perhaps it’s best to hold off on using your emergency savings until something dire happens, like unexpected medical expenses or a roof leak.

“I would still recommend evaluating the ‘rules’ you’ve set up for your own emergency fund,” says Anna Sergunina, CEO of MainStreet Financial Planning. “Everyone has a different definition.”

2. What benefits do I have access to?

Depending on who you work for and where you live, there may be access to some financial relief. Some Americans, for example, can take advantage of unemployment benefits, paid family leave policies and paid sick leave. Certain employers agreed to keep paying hourly employees even if they’ve temporarily closed shop.

A recently passed emergency stimulus bill provides additional funds for food stamps, unemployment insurance and paid sick leave for at least two weeks. Critics say it still leaves most working Americans without coverage. The paid sick leave provisions only apply in limited circumstances, such as if a private-sector employer has fewer than 500 employees. Congress is also considering a trillion-dollar stimulus package that could include two rounds of direct payments to American households.

Either way, it’s best to avoid making any sudden moves, in case there are changes that would provide additional financial support. If you haven’t already, find out what benefits you qualify for.

“If you need to care for a sick family member, you could look into short-term disability benefits,” says budgeting expert Andrea Woroch. “For instance, California offers paid family leave benefits for anyone who has to take time [off] to care for a family member.”

3. How much income do I need to survive?

With a crisis like the coronavirus pandemic, it’s critical to revisit your budget. Find out how much money is coming in, how much you’re spending and which expenses you can cut.

Make a list and add up your non-discretionary living expenses, says certified financial planner professional Buz Livingston of Livingston Financial Planning. These include bills and purchases you can’t avoid, like buying groceries and making insurance and mortgage payments. Discretionary expenses fall into the category of luxuries you want but don’t need, like alcohol and movie tickets.

“Ultimately, you want your savings account to be the last resort,” says Fo Alexander, an author and certified financial education instructor. “So before dipping into your funds, make sure you have evaluated what expenses can be cut in the interim. If you’re having trouble identifying what expenses can be reduced or eliminated, your priority should be food, shelter and transportation.”

Activities are already limited in many cities due to the coronavirus. And after reviewing your budget, you may find that you can get by without touching your emergency fund.

4. Are there other accounts I could tap first?

If you have alternative sources of income, you’re better off using them first, says financial adviser Diane Pearson of Pearson Financial Planning. “I would suggest waiting before raiding,” she says. “We are not sure how long this event is going to last, they may still need to use the funds, but it may be a few weeks.”

Consider all of your options. For example, banks like Citi are waiving early CD withdrawal penalties. If your bank has taken similar steps, a CD could be worth dipping into first. Consider using funds from other sources of cash investments, like money market accounts and other savings accounts. You could even tap into the money you reserved for vacation in light of cancellations.

Of course, it’s better to tap into your emergency savings than to end up in more debt by taking on personal loans, excess credit card debt and other forms of financing.

“I’d go to your emergency account before you tap into a Roth IRA and take a free distribution from there,” says Justin Halverson, co-founder of Great Waters Financial. “Home equity line of credit — rather not use that if you don’t have to right? Unless you think it’s temporary and you can pay it back before any interest is due.”

5. Are there ways I can supplement my existing income?

Tapping your emergency savings fund may not be necessary if there are other ways to get the money you need to support yourself and your family. If you do some research, there could be a chance to take on a new side hustle.

“Take on a side hustle you can do from home,” Woroch says. “You could pet sit via rover.com to make up to $1,000 extra a month or find freelance opportunities via FlexJobs or UpWork.”

Just make sure to watch out for scams or thieves hoping to take advantage of others during a crisis.

6. Are there purchases I can wait to make?

Something else to consider is whether you can delay any purchases planned for the near future, especially if they’re not urgent. It’s tempting to stock up on supplies, but if money is tight it’s a good idea to limit yourself to getting what’s needed.

“One interesting trick that helped me ‘buy’ time and prevent me from overspending is the 24-hour rule,” says Sergunina from MainStreet Financial Planning. “If 24 hours later I still think about this particular expense and have the urge to get it, then maybe it’s worth something to pursue. If those thoughts are gone, then I move on.”

7. How soon could I replenish the savings if I use them?

Finally, before tapping into your emergency savings account, consider how you’ll replace any funds you might withdraw. After all, it could be a while before we see the end of the coronavirus pandemic. President Donald Trump has said the impact of the virus could last through July or August.

If you use your emergency savings before you need them, there could come a time when you desperately need savings you don’t have. That won’t be the case, however, if you strategize and plan carefully.

Tips for lowering your expenses and boosting savings

Experts recommend having at least enough emergency savings to cover the cost of your basic living expenses for at least three to six months, though that range can differ depending on the size of your family, your job situation and other factors.

“We always say three to six would be the low end,” says Halverson of Great Waters Financial. “We like to say six to 12 months would be recommended in the sense that, could you make it out of work for a year without having to tap into long-term retirement savings, going into debt, things of that nature?”

If you don’t have an adequate savings cushion, there are ways to quickly grow your emergency savings fund, like cutting out expenses and selling unused or unwanted items. Since many banks offer bonuses, opening a new checking or savings account could be a good way to snag extra cash, though depending on the terms and conditions you may have to wait months to meet the qualifications.

This could also be a good time to lower expenses and boost your savings by comparing insurance policies and switching insurers if needed, Woroch says. “Another idea is to raise your deductible on these plans to lower your monthly payment,” she adds. “I recently switched and got better coverage, saving nearly $1,100 off my premium.”

Finding ways to lower your debt payments, such as by refinancing, could be helpful. And depending on your credit card issuer, there may be an opportunity to temporarily delay making certain payments. “If your income has been impacted by the virus, call your providers to see if this is an option,” Alexander says. This will help lower your expenses until you’re able to become financially stable again.”

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