What to Actually Do With Your Money in an Emergency
How’s everyone doing at home while social distancing? Here in Boston I’m actually doing pretty well, which I attribute to this being my way of life during my first few years of life. I didn’t really leave the house until I was preschool-aged for reasons known only to my parents, so chilling at home feels weirdly… familiar? While there’s no more textured wallpaper to inspect or VHS tapes to rewind like there was in the 90s, I am so happy to leave that in the past. The Internet and my little home library is a much better alternative anyway, especially since I can read and write now to pass the time.
Today I wanted to write about money in an emergency, specifically, since that’s one of the more popular financial topics at this time. Liz the Chief Mom Officer recently asked on Twitter what you’d actually do with money in an emergency. Yes, we’ve all heard the adages about emergency funds (that companies for some reason haven’t followed). We all know those are ripe for plunder when life just socked us in the kisser. But now that life’s gone on a punching spree and knocked down tons of us, we need more guidelines than just “use your emergency fund during an emergency”.
And there was a great discussion about what you should actually do.
Several finance folks responded to that thread and the results were really eye-opening. Turns out, having an emergency fund is just one line item on the list of Emergency Financial Protocols everyone’s following. This includes any last-ditch alternatives like “grovel to parents” or “pray” (my contribution). With government benefits sucking ass compared to the rest of the developed world, doing this in America is doubly important.
After reading what everyone else is doing I’ve taken the average and compiled a list of what you should do with money in an emergency. Here’s the number one disclaimer you should keep in mind about this list: this advice is subject to what type of emergency you’re facing. If it’s an emergency like “a natural disaster/freak accident destroyed something valuable I need to get replaced,” your emergency fund should be able to cover you while you take care of the replacement.
If it’s an emergency like the one we’re all facing now – “there’s a global pandemic that has singlehandedly shut down several companies and has possibly left me out of work” – there’s more nuance to it. For this reality, we have a silver lining in the timing. We have the wiggle room to prepare and make a strategy for weathering it.
Thankfully, I don’t have to go through this just yet (knock on wood). I still have my job with a great company and I’m already used to working remote, so self-isolating to help everyone around me is ridiculously easy. I’m even reworking my budget to spend more money at local restaurants for takeout, because I’d rather they still be around when we can go outside again.
But because I know I’m not the only one that exists in the world, my biggest worries are for the health and safety of everyone else. This includes financial health and safety too. Let’s rank the steps you should take if you find yourself knocked down by a black swan event:
1. Review your budget and see what expenses you can cut. Cut anything that doesn’t directly keep you alive and breathing.
Far and away, this was the most popular #1 reaction. Reworking your budget also makes the most sense; if you know times ahead are really tough, you’re going to start stockpiling what you’ll need now. Not to the point of hoarding toilet paper or sanitizer, mind you, because that’s being heinously malicious against your fellow man. Everything else – like subscriptions, add-ons, or extra treats – should go away at this time. Once you’re in a better place we can add them back.
2. See if any of your necessary expenses can be negotiated
My landlord is also my duplex neighbor, and recently she’s stopped me twice to “casually” ask if I’m still WFH. I’m positive she wants to make sure I’m not hurting, but also that I can still make rent payments. I don’t blame her at all for the worry; she’s got kids to support and depends on that rental income. With that said, I’m on good terms with her and could negotiate a temporary rent break if I needed it. Even paying 75% of my monthly rate would lower my expenses by hundreds of dollars; you might be surprised to find the same goes for you. It’s worth it to at least check in; the worst they’ll do is say no.
3. Check out where you can make any extra money, even if it’s a little
For me personally, this would mean finally getting off my ass and selling some furniture I’ve been meaning to. “Come get this dresser for sale! We’ll practice social distancing during pickup and be on our merry ways!” Others have suggested writing articles, babysitting, or renting spare rooms to drum up further cash. I’m not as excited at this line item as it has the most potential to not be viable. There’s tens of millions right now grabbing at whatever work they can, after all. But it’s a definite option, and I encourage you to explore it if you can. Every little bit counts.
4. Use up your emergency fund and other cash funds
Wow, the emergency fund is actually a lot lower on the list than I thought! This comes as an excellent buoy to keep you afloat for a lot longer; if you have a minimalist fund like mine it should keep you going for months; others who are more conservative can tap into this fund for a year or more. However big or small your fund is, that’s what will keep paying the bills for a lot longer than what you could have otherwise.
5. Tap your taxable investments, then your tax-advantaged investments
If you’ve been following along you should have some investments set up for those sweet index funds. Being in a bear market or recession shouldn’t change that. This gives you an additional buffer if you do happen to need it. You want to avoid this by any means necessary as this money is supposed to support you in the future. Yet the world is a messy place and you might be forced to fall back on this. It happens. Needing money in an emergency needs to take precedence over future comfort. The main consolation is knowing that it’s there if you need it, so don’t fall down a pit of despair. It’s still doing its job of keeping you alive so you can see a future at all.
Further help might come in the form of a 0% credit line or loan. If you know you’re responsible enough to take advantage of this option, AND you’re realistic about when you’re able to pay them off, this could help you out as well. I can’t in good faith add it, though, as it’s too slippery of a slope for most of America. If you’ve ever had outstanding credit debt, I’d really think twice about going down that rabbit hole again.
If you’re location-independent, up and moving might be the best thing you can do for yourself as well. This also didn’t make the list as I’d rather not encourage others to potentially spread death in their wake. However, assuming you’re hyper-vigilant about keeping your germs to yourself and taking the proper precautionary measures, going remote could make a lot of sense.
What else would you do with money in an emergency? We’ve covered your bases pretty well but there may be something valuable I should add. Let me know!