Families Can’t Rely On A 3-month Emergency Fund Anymore

A family’s financial health often dictates their decisions, daily responsibilities, and overall lifestyle. While many of us don’t like the idea of money governing our every movement, we must acknowledge its ability to enable our capacity to live a meaningful family life. And if there’s one thing the global pandemic has made many households across America realize, it’s the importance of having a good grasp on your family finances because sudden economic turbulence that leads to layoffs and lockdowns can abruptly pull the rug from out under.

Sadly, despite many families struggle to hold their finances together and see the light at the end of the tunnel, the go-to advice of having a 3-month emergency fund squared away in a high-yield savings account is no longer enough. In today’s world, a household will need to have upwards of 6 months to a year’s worth of expenses saved up as an emergency fund if they want any form of financial security against economic uncertainty.

Three Months Aren’t Enough.

  • The Everyday Items Are More Expensive: If you’ve been grocery shopping recently or finally dropped the mantra of ordering food in exchange for some good homecooked meals, then you’ve probably realized that prices have gone up since your last visit to the store. And many speculations are lead to believe that everyday items are bound to become more expensive in the few years to come, meaning that bumping up your budget and overall emergency fund is an inevitable responsibility.
  • Risk Of Unexpected Circumstances: While we don’t like to entertain the idea of anything bad happening to our families, unexpected circumstances such as a loved one passing away are things we need to consider moving forward. Grief is one thing, but to juggle that emotional burden alongside financial stress is a crisis no family should ever have to go through.

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The Unseen Bad In All The Good

Apart from the observable effects of the global pandemic, there are many impacts that “appear” to be good but actually hold inherent risks and problems to them. And while most people will get to experience some level of impressionable benefit at first, these faux instances of positive return may prove detrimental as it unfolds in the long term.

  • Sudden Economic Rebounds: Economic rebounds were bound to happen, with extreme demand for almost every item in shortage and isolation severely impeding people’s ability to enjoy life; it’s only natural for production to ramp up as safety measures become less strict. However, with economic recovery as strong as the one we’re currently experiencing, it now raises the question of whether the growth is sustainable. And if we’re unable to manage the rebound well enough, we could meet a bottleneck and come crashing down once again.
  • A Potential Housing Bubble: Normally, an active real estate market with both investors and first-time homebuyers utilizing the lower interest rates to get better terms on their mortgage loans is a strong indicator for a healthy economy. And we can actively observe this to be the case with the current housing market boom as more people think about long-term financial security. However, the same signs are also associated with a housing bubble, and if the events of the 2000s financial crisis are to be referenced, we may very well be at the peak before a steep bust.

Of Course, Some Statistics Say Otherwise

In contrast, some statistics do say otherwise about the world’s current financial state and picture a more optimistic outcome for the foreseeable future. In recent developments, we’ve seen a drastic decline in unemployment, the lowest since the global pandemic began, signaling effective efforts of job creation and giving back people’s livelihoods. Furthermore, many investors also carry a bullish sentiment on the overall market conditions. With more than 48% carrying a positive outlook, it’s natural that we see this risk-on behavior reflect on the markets.

But, Stay Vigilant And Be Financially Safe

Nevertheless, once we account for all the variables, we can all agree that there’s far too much uncertainty at play to still consider the traditional 3-month emergency fund as a safety cushion. Therefore, we strongly recommend families review their finances and start saving at least six months’ worth of essentials while still possible. Remember, it’s much better to stay vigilant and financially safe than to be on the short end.

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