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There’s no better money management tool than the budget. This spending plan helps you prioritize your income so that you have the cash you need for important expenses — on and off-campus.
But what happens when it’s wrong? What if your expected income takes a hit, or your expenses vary drastically?
Like many students learning remotely, you’ve already experienced a big change due to the ongoing healthcare crisis. Maybe you’ve also lost hours at your job due to COVID-19 security measures, or perhaps you’ve seen your living expenses increase since you’ve moved off-campus.
While a global pandemic may be exceptional — with hope, it’s a once-in-a-lifetime experience — it does provide an important financial lesson. You can’t always easily anticipate the income or expenses in your budget.
The unexpected can happen under perfectly ordinary circumstances. When they do, an emergency fund can help.
What is an Emergency Fund?
An emergency fund is a special cushion of savings that you keep aside for urgent financial situations. You can tap into these savings to cover unexpected expenses you wouldn’t ordinarily be able to pay out of pocket.
An Emergency Fund is Crucial to Remote Learning
A couple of years ago, an unexpected expense for the average student might have been a medical bill. If you wound up at the campus clinic after breaking your wrist, you could withdraw cash from this reserve to cover this unexpected medical expense.
Nowadays, you might be facing more unexpected expenses as a remote learner. You might not have convenient access to the library if your tech goes down one day. You may be living off-campus and need a car to get around.
Your emergency fund can help you cover unexpected tech breakdowns or car repairs. It’s also helpful should you lose your job due to illness or lockdowns. If you manage to collect enough savings in this fund, you can use it as a backup to your missing paycheck.
How Much Do You Need in an Emergency Fund?
Much like your budget, your emergency fund is personal, and it should reflect your expenses and living situation. However, most financial advisors recommend setting aside the equivalent of three to six months of living expenses.
This target includes all your essential spending, so you should calculate how much rent, utilities, and education costs add up to over six months.
After punching this into your calculator, you’ll probably wind up with a daunting goal. Try not to let it intimidate you. It’s big so that you’ll have a cushion in case you lose a summer job or that scholarship you were banking on.
When it comes to emergency savings, the journey is sometimes more important than the destination. Whether you have four, five, or six months of expenses doesn’t matter as much as making regular contributions toward this account.
Falling Short of Your Goal Before an Unexpected Expense
If plan A is your budget, and plan B is your emergency fund, what’s plan C when neither works? If you wind up having to take your car into the shop when you have no extra cash on hand, you might take out an installment loan or line of credit.
In an emergency like this, you’ll want to research online loans carefully before you borrow them. There are many installment loans and lines of credit available online, and each one comes with different rates and terms. You need to confirm you can handle their cost before you sign an online loan contract.
How Do You Save More for an Emergency?
When it comes right down to it, time is the single most critical factor of building savings. With a target as big as six months, you’ll need a fair bit of patience to see your fund grow.
During these months (or years) of saving, consistency is another vital trick to growing your emergency fund. Think of these savings as an essential expense, just like rent or utilities. Just as you budget for these bills, you’ll have to pay into savings every month.
If your paycheck can’t stretch that far in a typical month, you’ll have to think about ways you cut into discretionary spending. Limiting how many subscriptions you have or how often you purchase takeout can help you unearth more savings.
If that works, automate your contributions so you don’t forget to move money around each month. Lastly, you’ll want to leave your savings alone until you’re facing an emergency.
Start Saving for Another Day
Remote learning has transformed your college experience — for this year, at least. Not only are you attending class from your couch, but that couch is also located off-campus. This change in scenery means you might be facing more unexpected expenses than usual.
Preparing for them in advance with an emergency fund can help you handle these expenses with greater confidence. So, take a look at your budget to learn how you can boost your savings.
