Covid-19 | Why Emergency Fund is Crucial!

Hey guys, good day. I hope you're all doing fine. Last week, I wrote up some recommendations on how to stay save during the Covid-19 pandemic. Three days later, the government came up with the same recommendations. The last and the most important recommendation is to keep distance from each other. You obviously can’t do that in the family, but keep distance from everybody else. You should be at least 2 meters away from another person at all times. Very important!!! Now let's see why emergency fund is crucial in difficult times like this.

People Panic over Wrong Reasons
All my colleagues, my friends and even my family members are not concerned about the virus. They are concerned about income loss and inability to pay the bills. Although, the government is stepping in with financial aids, mortgage deferrals, and food banks – people are still panicking over finances.

#1 Rule of Personal Finance
The most important rule of personal finance, no matter how much money you make, is always save a portion of your paycheck. You should be able to save at least 10% off you pay, put that money aside in the savings account and leave it there for rainy days. In the past 20 years we went through two market crashes and at least four epidemic outbreaks. We should have learned something from these events. When times are bad, we have to tap into our savings, aka Emergency Funds.

Optimal Emergency Funds Amount
Everybody should have enough money to survive for 6 months in events of income loss. And it doesn’t just apply to individuals; businesses need to follow the same rule. Six months of expenses saved up is a great financial cushion to weather any storm. At least, you won’t’ be stressing too much about finances.

Personal Finance Advice Post-Crisis
Once the Covid-19 crisis is over, adjust your personal finance. Stop living paycheck to paycheck and spend your money frugally. Start with 10% saving rate and gradually increase the saving rate when you get a pay raise.

My personal saving rate
My personal saving rate at the moment is 50%. When I started saving 12 years ago, it was around 10%, but as my salary increased over time, my saving rate increased as well. I did not redirect my pay raises towards lifestyle inflation. I still live in the same apartment, enjoying the same low mortgage payments. I have no car payments, no credit card debts, no credit lines, except for the mortgage. However I have enough finances to eliminate the mortgage and really be debt-free.

Bargains in the stock market
There are certainly a lot of bargains in the stock market right now. It’s a great opportunity for the long term. The pessimism is at all-time high. The next couple of weeks should be interesting. The markets will either tank more or they will start to turn around. If we can flatten the curve, we will win this war. Also, look for positive signs. Scientists were able to duplicate the virus and they are now ramping up all effort to create a vaccine.

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