July 2, 2020

How to Build an Emergency Fund in the Middle of an Emergency

Next, take stock of possible sources of cash and credit. It’s not advisable to open new credit card accounts, but knowing the credit limit on each card already in your wallet can help you get an idea of what you can draw on if needed, Mr. Thompson said.

If you are expecting any sort of lump sum — whether a bonus or a commission, or an income tax refund — set aside as much of it as you can. Many Americans are now receiving tax refunds, and the amounts can be substantial, in part because of the earned-income tax credit, which particularly benefits families with children.

Among families getting a refund, the average is more than $3,000, or the equivalent of nearly six weeks of take-home pay, according to a study of millions of customer accounts by the JPMorgan Chase Institute, the research arm of the big bank. (The study looked at data from 2015, 2016 and 2017. According to I.R.S. statistics, the average refund as of March 5 was $3,012).

That could help provide a financial lifeline for the difficult weeks ahead — but it isn’t a panacea, Mr. Thompson said.

That’s because many people have earmarked their refunds for specific expenditures, like paying down credit card debt or buying household items. “For many people, the money is already spent,” he said.

Still, families getting tax refunds had, on average, more than a quarter of their refunds remaining six months after receiving them, the Chase research found. “A few hundred dollars can make a substantial difference,” Mr. Thompson said.

Next, scrutinize spending, and cut where you can. It may feel harsh, but belt tightening is the idea. Can you postpone a (no doubt much anticipated) spring trip? Are there subscriptions you can do without temporarily? (Many publications are offering online coronavirus coverage free of charge.) Can you switch to a less expensive cellphone plan for a few months?

Article source: https://www.nytimes.com/2020/03/20/your-money/coronavirus-emergency-fund.html

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