Dave Ramsey says a fully funded emergency fund is 3-6 months of expenses. But is that enough? Many are having to re-examine Baby Step 3 as a result of the pandemic. Unless you’re an “essential” worker, your financial situation may have been a gut punch…
Analyzing the 3-6 Months
I have always leaned toward the 3-months for people with “secure” employment. For example, I am a school teacher by day. My wife’s day job is being a registered nurse. So we’re both essential workers. Well, I see teachers as essential workers, but I suppose that’s another post.
In any event, we are fortunate to have continued earning our paychecks throughout the pandemic. I kept teaching while she kept saving lives and stomping out disease.
For individuals at risk of layoffs – especially with the pandemic – 6 months makes more sense. But some folks have been laid off more than 6 months. Assuming they even had a 6-month emergency fund, what are they doing for money now? One thing is certain, 6 months may have to be tweaked to 9, maybe even 12 months.
In my family, we are in the process of increasing it from 3 to 6 months. So we hit the pause button on Baby Step 6 (paying our home off early).
But how do you replace/extend the Emergency Fund with little to no income?
Some families are still on Baby Step 3, so stay calm and keep saving if you still have an income source. If not, we may need to cut luxury items from your budget. We don’t need 3 streaming services and new cell phones when our incomes have been reduced or eliminated.
Others may have exhausted the Emergency Fund. They could press the pause button on Baby Step 4 (15% to retirement accounts), possibly even Baby Step 5 (college savings) and Baby Step 6 (paying home off early).
Still others may have been furloughed from their day job. Although there was some help for families (i.e., stimulus checks) and businesses with the CARES Act (i.e., PPP), Congress seems to be dragging their feet at doing a second round of stimulus payments.
What are these people to do? Live on the unemployment as long as possible, I reckon. Many individuals, including me, have taken on side hustles.
The Side Hustle
The side hustle is informally defined as something that someone does on the side to earn extra income that could potentially become a permanent replacement source of income. This blog and my coaching business are an example!
Read this book by Chris Gillebeau. It’s one of my favorite. (No, this is not an affiliate link.)
One of my friends is doing carpentry. He may actually stay with that!
I know of another person who started delivering for Grub Hub.
Many creative types are starting blogs (like this), podcasts, and YouTube channels. In this gig economy, newspapers, radio, and television are being replaced by citizen journalists even faster due to the pandemic.
If ever there was a time for a side hustle, now may be the time. Many pundits are saying that 2021 could be the beginning of a new “golden age,” a time of peace, prosperity, and stability.
So as serious as losing a source of income and using up the emergency fund can be, there is light at the end of the tunnel.
The only thing worse would be not having any Emergency Fund. If you’re in that boat, reach out to me at mark@marknoldy.com. Or you can call/text me at 570-731-0425.