In this week’s Show Me the Money, the coronavirus pandemic has taken a toll on our personal finances. While most of us are now at home this is the perfect time to make a budget.
“We’re obviously spending a lot less on discretionary fun right now, we’re not going out to bars, we’re not going out to the movies. Now might be a good time to stash away that cash that you do spend every month on frivolous and fun things and put that into an emergency fund so that you can afford your groceries and you do have the cash to pay your absolute necessities,” Greg Mahnken of Credit Card Insider said.
Mahnken says this pandemic highlights the need for everyone to have an emergency fund.
“Ideally it should be able to cover three to six months of your necessary expenses, food, housing, transportation, etc.” Mahnken said.
An emergency fund is good to have if you lose your income, but what if you already have?
Mahnken says if that’s the case, then now is the time to find ways to reduce your bills to free up cash for necessities. You don’t want to have to turn to plastic.
“The goal of this is you don’t want to use a credit card in this situation to take the place of an emergency fund because that’s just going to bury you more in credit card debt which is definitely something we want to avoid. We don’t want to get into a debt trap or a debt spiral, and that happens when we start borrowing with funds that we don’t have or we need to borrow to pay off other credit cards or other loans. Right now cash is king and if you can afford to buy things in cash without interest I definitely advise doing that,” Mahnken said.
For some, using credit will be unavoidable. There is an option to help if you fall behind so badly it affects your score.
“If your credit does happen to be damaged by something during this pandemic, you can put a consumer notice on your credit reports, it’s a 100-200 word note that just explains your situation saying hey I’m unemployed because of the stay-at-home order or my family member was sick and I had to go into quarantine and that will help lenders in the future who are looking at your credit report,” Mahnken said.
One more note about emergency funds, these should be kept separate from other savings accounts so you’re not tempted to borrow from them throughout the year.
For more information on adding a consumer statement to a credit report, click the link: https://www.creditcardinsider.com/learn/whats-in-your-credit-report/#should-i-add-a-consumer-statement-to-my-credit-reports