What to do when your emergency fund runs low

On page 1 of “Financial Planning for Dummies”, it tells you to create an emergency fund for a rainy day.

That emergency fund typically consists of at least 3-12 months’ worth of outgoings in cash, Premium Bonds or something similar.

We’ve nearly had a month of lockdown, and there’s no telling how long it will take until we can get back to work and some normality returns.

And we have no idea how long the economic effects will last; these effects will not just affect those who are working, and many retired parents will now be wondering if they can help their adult children if push comes to shove.

Given this dynamic, it’s helpful to work out what to do if it starts to look like your emergency reserve could run dry.

While you may still have several months of emergency funds left, it can be comforting to identify the next source of cash now.

As well as providing peace of mind, this has some practical benefits, as some options can take time to establish, mainly when investment and pension companies are working for home.

If your emergency funds start to run low, there will be several options available to you, and I’m sure that the internet and the financial press will be full of answers in the coming months.

But, of course, no one solution will work for everyone. In essence, we’re all different, with different financial goals, and different views of risk and none of us has the same assets, liabilities, income and expenditure as anybody else.

There is, however, one course of action which we should all take in these circumstances. Go back to your financial plan, and review it.

And if you don’t have a financial plan yet, now’s the time to get one!

If you are worried that you will spend the cash you have set aside for emergencies, your financial plan (with the help of your planner) will help you identify your next line of defence.

If you think that one of your adult children might need help in the months to come, your financial plan (with the help of your planner) will help you to work out to what extent you can help them, and from where the funds might come.

The start of a new tax year is often an excellent time to be making changes, or at least considering modifications, to your investments, as your annual allowances (such as your capital gains tax allowance) are likely to be available in full still.

It probably won’t be necessary to make any changes to your investments or pensions now, but for many people, knowing what to do next will provide the peace of mind they need in these stressful times.