When your life gets turned upside down

The last year has redefined what’s considered an “emergency” for many like me.

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Key takeaways

  • Planning for financial emergencies includes more than just job loss and illness.
  • If you unexpectedly need to use your savings, make a plan for what's next.

The last year has been one worry after another, despite all of the financial planning I did before having a child. When I decided to have my son via a donor almost 8 years ago, I did my best to prepare: saving ahead for a year of daycare; loading up on insurance (including life, disability, and umbrella insurance); building an emergency fund; carefully choosing guardians in a will.

And yet, nowhere in my wildest imagination did I account for a pandemic.

Rethinking financial priorities

When the public schools went remote, my town began scrambling. Many of the parents I knew either panic-applied to the local private school or began forming learning pods, hiring a tutor to supervise online learning. No doubt there were some people—statistically, women—who left the workforce to do it themselves. All of these options were expensive and unaccounted for.

My best friend, who often worries about money, commiserated with me, then sent in her son's application to the private school, noting that she'd pay any amount of money to avoid having him interrupt her all day long. I couldn't help but agree, wondering what might happen to both my career and my sanity otherwise.

I eyed the cost of the tuition and aftercare. Did I want to impact my long-term finances this much?

Before the pandemic, I had 2 main financial priorities: building my net worth and (worst case) not leaving my son a destitute orphan. In an expensive urban town, this is harder than it sounds, even with a good job and a solid financial plan. But I'd been making progress—my son was out of daycare and I'd started investing that money instead. I hated the idea of a new expense or spending my emergency savings.

If this isn't an emergency, what is?

At first, my worst-case scenario planning refused to let me acknowledge that this was indeed an emergency worthy of my money, despite my mounting physical and mental stress. Fidelity research shows this is common among women and mothers—women tend to hold on to more cash than men—just in case something worse comes along.* I knew that sending my son to this school would be better for him, me, and my career, but I kept wondering, "Is this the emergency?"

So I called my financial representative to get some guidance. As we talked, she reminded me of the Fidelity guidelines that we try to have 3–6 months of living expenses available for an emergency, but that the definition of "emergency" is flexible. Then she said, "If a pandemic isn't an emergency, I don't know what is."

How to change direction

She wasn't suggesting reckless spending, but rather a more flexible checklist for deciding how and when to change direction:

  1. There is no one definition for what's an "emergency."
    Yes, emergency savings is very important in the event of a job loss or illness—but that's not its only purpose. It's really about scale: Are you experiencing something that is critical to your well-being or health? Is this something that impacts your ability to provide for yourself and/or your family? This could be anything from a death in the family, to an unexpected move, to a divorce.
  2. Have a plan for how to build your savings back up if you use it.
    If you do use this money, then look at your monthly income and expenses and set aside what you can to build it back up. If getting back to 3–6 months of savings isn't possible, aim for a $1,000 buffer that you try not to touch—then save as you can. Fidelity's guideline is to save 5% of your take-home pay for unplanned expenses, but that is when you already have some emergency savings—so you can adjust up or down based on how much you've used.
  3. If you need money beyond what you have in your emergency savings, talk to a professional before you make any decisions about where to go next.
    There are several ways you might be able to tap into cash if you need it. For example, you might be considering a second mortgage, a 401(k) loan, or using your credit cards—but there is a hierarchy of considerations, including, but not limited to, taxes, penalties, and interest.
  4. Consider a backup to your emergency savings.
    Once you have 3–6 months' emergency savings in an accessible cash account, you can keep saving, but it might make sense to consider keeping above-and-beyond money somewhere that gives it potential to grow. There are ways to invest that are easily accessible, have low fees, and match your desired level of risk and involvement.

Like so many others, I was at my wits' end, watching my mental and physical health decline in an effort to juggle everything. So I listened. I sent in the application, then my financial representative helped me run some scenarios and come up with a plan for how to pay the tuition and replenish my emergency fund. It wasn't my original plan, but it was right for what was happening right now.

Next steps to consider

Create a plan of action in the Planning & Guidance Center.

Ask yourself 4 questions to help prepare for the unexpected.

There is a financial impact to caregiving far beyond just salary.

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