SAN DIEGO (KGTV) - Record unemployment during the coronavirus pandemic and the ensuing financial crisis reinforced the need for emergency savings funds. But, as people head back to work, many do so with depleted savings or none at all.
"This was unprecedented," says SagePoint Financial Adviser Dennis Brewster. "I think it reinforced the concept of how important it is to have some kind of cushion, just in case something goes south."
Conventional financial wisdom says people should have 3-6 months worth of expenses in an easily accessible savings account. Brewster adds each person needs to analyze their budget to determine what expenses are essential and worth saving for.
"Your rent or mortgage, your car, your medical, those are the main ones," he says. "But don't forget the rest of the expenses that tend to be smaller, but on a regular basis...
"All of us could take a look at our budget and see what you need to have and what's kind of nice to have."
Surveys during the pandemic showed that most Americans don't have the recommended amount of savings. A July 2021 study by Bankrate showed that 25% of Americans have no emergency savings and that 26% don't have enough savings to cover three months.
Another Bankrate survey from January found that only 39% of Americans could afford a $1,000 emergency bill, like a surprise car or home repair.
Meanwhile, a June report from YouGov found that 40% of people who had savings before the Pandemic were forced to dip into it over the last 20 months. Of those, 73% spent half or more of their emergency fund.
Brewster says that means millions of Americans will need to either start or re-start their emergency savings funds. And he says the sooner you begin, the better.
"That toughest step is always the first one," says Brewster. "Even if it's small amounts, $10, $25, whatever the number is, isn't so critical. Just take that first step. Do a small amount to get it headed in the right direction and go from there."
To take that critical first step, Brewster suggests opening a basic savings account and linking it to your primary bank account. Then he says you should set up an automatic deposit, either every paycheck or every month.
But, he says the pandemic also taught us lessons about how to stretch an emergency fund and make a little bit of money last longer.
Brewster says many landlords, banks, and other companies are now willing to negotiate lower payments in the event of a crisis. And living through COVID taught many people what parts of their budget are essential.
He also points to record numbers of new small businesses as proof that people are trying to build multiple sources of income, which will provide a buffer against an unexpected job loss.
"Every crisis creates an opportunity," he says. "People were very resilient. That points to optimism, self-reliance, and a digital-first mindset."