COVID19 has wreaked havoc on my finances, just like everyone else’s. My business revenue has been in freefall since mid-March, and a nascent start-up I was working on got eaten up entirely. When the daycares closed, I ended up at home full-time with my toddler, unable to work.
Nevertheless, I was still surprisingly prepared for a global pandemic. The secret? Multiple emergency funds. Four, exactly: one of “stuff” and 3 of money.
Poverty, entrepreneurship, and motherhood steeled me against the unexpected
The older I get, the more I think about how my experiences in childhood and young adulthood affect how I handle money. I feel like scarcity, bouts of housing insecurity, and inconsistent income have made me manic about never suffering like that again. I’m continuously confronted with how vulnerable I was as a child and young adult, and how vigilant I have to be against falling back into those situations again.
By the end of my 20’s, I thought I had escaped financial hardship for good. But a divorce followed by an unplanned pregnancy, and then an unpaid maternity leave showed me where gaps remained. And they weren’t small gaps: they were chasms that threatened to swallow me whole if I neglected them.
I’ve spent the past 2 years steeling myself against financial crisis with feverish paranoia. I was always preparing not only for something to go wrong but for everything to go wrong all at once.
Turns out that was the best thing I could have ever done.
A note on privilege
Despite coming from a lower-income background, I know I’m now in a position of privilege. A lot of this can be attributed to hard work over the past decade, but some of it is sheer dumb luck and unearned advantages. I know if the COVID-19 had struck even 2 years ago, I would have been one of the many financially struggling. If it had happened in the years before that, I would have been even more vulnerable as a student.
My biggest advantage to my finances in this crisis was simply time. I have had time to gain traction in my career and the stock market and time to recover from the other financial catastrophes that hurt me in the past.
This is one of the biggest challenges of managing your money in your 20’s: there’s so little inertia behind you. Now that I’m in my 30’s, I credit the financial decisions I made when I was younger for the security I have now.
I remember the sacrifice it took to pay off my student loans so quickly, and how much “fun” I skipped out on to pad my retirement accounts instead. At the time, I thought I was just doing what I was supposed to do. Now I understand how much peace that discipline brought me.
My home was already stockpiled with 2 to 3 months of household goods
This isn’t the first time I’ve mentioned my Emergency Fund of Stuff, but I’ve never loved it so much as I did in lockdown.
I always joked that I was a “Bad Mormon” for only keeping 3 months of household necessities on hand instead of the full year the Church of Jesus Christ of Latter-Day Saints suggests. I’m not a practicing Mormon now, but old habits die hard and I don’t feel safe without extra everything on hand.
As soon as I had an apartment with a storage room, I filled it with the things I knew I would always need and would hate to run out of: tampons, shampoo, toothpaste, and of course, toilet paper. When everyone flocked to the grocery stores to panic buy essentials, I shopped my storage closet.
My hoarding was especially useful when grocery shelves were unexpectedly empty of random items, like flour or yeast. For the duration of lockdown, we didn’t run out of anything.. except Lysol wipes. Those are the one thing I still can’t find to replace my stash!
The Secret To Being Financially Prepared For Anything: Multiple Emergency Funds
Aside from my Emergency Fund of Stuff, I keep three more traditional Emergency Funds. Here’s how my they breakdown:
The Slush Fund to keep me out of overdraft
I do my primary banking with Tangerine, where I keep both a chequing account and a savings account. I use the chequing account for most of my household bills, like rent and utilities. Alongside it, I have a savings account nicknamed my “slush fund” that I keep at least $1,000 in at all times.
I use my Slush Fund to catch any spillover if I spend too much in one category in a single month. It’s also for if something unexpected comes up, like a parking ticket. Essentially, the sole purpose of this account is to keep me out of overdraft, a place I used to casually wander into and hang out for a few days every so often. The $1,000 sum is just enough to cover more than one surprise expense, without leaving a huge amount of money sitting still earning no interest.
I know some financial diehards will balk at leaving $1,000 in a savings account paying a piddly 0.15% interest, but this is what works for me. If I keep the sum in my chequing account, I spend it too easily. If I move it to a higher-interest bank, I end up eTransferring myself ridiculously small sums like $15 to cover minor overspending incidences. You can keep your slush fund in your chequing account if you’re disciplined enough not to spend it. Otherwise, keep it somewhere else but still close by.
I built my Slush Fund by transferring $25 every Friday to the account and add to it every time I get cash back from my credit card, as well as my quarterly payouts from Rakuten. Between these three sources, I had fully funded the account in less than 6 months. Now the small amounts of interest it earns simply serve to buffer it up further.
A dedicated Car Emergency Fund
One of my two accounts with EQ Bank is my Car Emergency Fund. It might seem silly to keep a dedicated savings account for a car unless you own one and know what a money pit vehicles are. I actually feel so passionate about Car Emergency Funds I wrote an entire post about why you need one right here.
I started my Car Emergency Fund with $1,000 from my income tax refund, as is this my insurance deductible. If I were to get in an accident, I have the cash set aside to go through insurance as needed. I also add $25 every Friday to the account, and it earns 2% interest which adds a few extra dollars each month.
I allow myself to withdraw from this account for any car expenses. This turned out to be especially helpful during the pandemic and I needed to purchase new summer tires. Since I had been diligently contributing $25/week for more than a year, I could buy my new tires while still leaving over $1,000 in the account to meet my insurance deductible if needed. Not only did a massive expense get covered while still leaving my safety net intact, but I also didn’t have to borrow money from elsewhere.
A “Real” Emergency Fund
Finally, I have a real Emergency Fund that I was diligently building to 6 months of essential expenses. I wasn’t quite there yet, but I was over 3 months which made for a significant cash cushion that lowered my stress levels considerably. When the Government of Canada started rolling out financial relief to citizens and businesses, my timeline of security extended further.
There’s a lot to be said about how much relieving the stress of whether or not you can meet your upcoming bills frees up your capacity to focus on other things. I know if I wasn’t in the position I am, I’d be agonizing over how to earn enough to get through the week, not asking the bigger questions of how do I manage my company in a world that’s irrevocably changed by this crisis. And this isn’t just my personal experience, data actually shows the stress of poverty correlates to the same as a loss of 13 to 14 IQ points.
I can’t afford to be short-sighted right now, so what my Emergency Fund has really bought me is peace of mind to continue to play the long game. I can assess the damage being done to my company by COVID-19 and determine how to weather the storm. I have the energy and mental resources to devote to creativity and extra projects
A real Emergency Fund totaling 3 months’ worth of essential expenses or more is a savings marathon, not a sprint. It can take years to build, but don’t let that stop you. If you don’t have one yet, open a high-interest savings account and set up a weekly or monthly transfer.
Your Emergency Fund should take priority over your retirement savings until you have at least $3,000 set aside. YOUR EMERGENCY FUND SHOULD TAKE PRIORITY OVER YOUR RETIREMENT SAVINGS. After all, as we all learned recently: retirement happens in 30 years but pandemics happen now.
The other things I did right in time
While saving all those emergency funds took years, there were a few things I managed to get in order right before the pandemic took hold. COVID-19 is more likely to be deadly for older people, but sometimes young people can suffer adverse effects and even death.
What would happen if I had a bad reaction to COVID-19 and had to spend weeks in the hospital, or even died? Turns out I was financially prepared for the worst outcomes, too.
Private health insurance
I’m still young without any chronic health issues, but I have private health insurance anyway. In Canada, universal healthcare coverage ensures we have access to both regular and emergency healthcare, but not all health services are covered. Prescriptions, vision, dental, mental health services, as well as things like massage therapy are all out-of-pocket expenses for Canadians. Private health insurance can cover some or all of these additional expenses, as well as provide additional benefits.
You might think private health insurance isn’t even necessary in a pandemic when you can’t access non-emergency dental care or get massages, but the coverage provides extras that give me peace of mind. From “hospital cash” for incidentals during a hospital stay, to a cash benefit that would be paid in the event of loss of sight or hearing, my insurance provides an additional cash cushion in the event that things really go awry.
Term life insurance
Only a few months before everything shut down, I had finally gotten life insurance. Nobody likes to ponder their death, but I had a 2-year old I needed to ensure was taken care of if the worst were to happen. I used PolicyMe to choose a $500,000 and 20-year term life insurance policy. It costs me only $25 per month, but it combined with my other financial assets ensures my child would be taken care of in the event of my death.
A medical directive and legal will
Likewise, I finally have a will for the first time in my life. When I was younger, I didn’t have much in the way of financial assets, let alone someone to bequeath them to. Again, now that I have a child, that has changed. A will is important not only for allocating your assets and possessions in the event of your death, but it also can include a medical directive in case you become incapacitated and cannot advocate for yourself.
I created a legal will with Willful for only $150. In it, I outline everything from the guardianship of my child to who gets my sentimental pieces of jewelry in the event of my death. I’ll admit, it’s not the most fun experience to allocate your stuff if you die, but it is one of those things that simply has to be done.
Like most people, I never imagined a scenario where the stock market crashed, I couldn’t work, my health would be at risk, and I might need to live off of my savings.
Before the pandemic, all the advice financial gurus give to save an Emergency Fund was just for a single catastrophe to happen, like a layoff from a job. We never knew there was a scenario where one terrible thing could happen on top of another and drag on for months. Even though I was ready for it, my perspective was still changed.
An Emergency Fund (or 3) is more important than retirement savings or even being debt-free. Prioritize it above everything else, because it’s your best defense against the unexpected.