The cornerstone of a strong financial foundation is a solid emergency fund. When we work with our clients to build their financial plans, the first thing we determine is if they have enough rainy-day savings to handle unforeseen emergencies.
An emergency fund is exactly what it sounds like: Money set aside for unexpected situations. Let’s face it, life throws us all a curveball on occasion. A roof may spring a leak, your car wears out, a family member needs emergency surgery or your job is eliminated.
The trouble is that we’re not always great at preparing for the unexpected. A survey by Bankrate.com found 25% of Americans have less than three months of living expenses saved up, and 28% have no emergency savings at all. This means that for more than half the country, even a small wobble in their day-to-day finances could leave them in dire straits.
While no one can predict the future, we can prepare for it. Your rainy-day fund should be easily and readily accessible. That doesn’t mean a cookie jar of cash, though. A simple checking account at your local bank with ATM access can be a great option. A money market account with check-writing privileges is another alternative.
Of course, you also need to determine how large your emergency fund should be. One longstanding rule of thumb is to keep six months of living expenses at the ready. Two-income households might consider budgeting for a minimum of three months of living expenses. High-spending households might need more.
Building up six months of expenses may seem daunting. We believe in setting small, achievable goals: Start by saving just one month of expenses. Once you’ve done that, you can begin working on other savings needs while continuing to build your fund.
If you would like our assistance in creating an emergency account, determining how much should go into it and then funding it, please contact your wealth management team. We are happy to help!
This material is distributed for informational purposes only. The investment ideas and opinions contained herein should not be viewed as recommendations or personal investment advice or considered an offer to buy or sell specific securities. Data and statistics contained in this report are obtained from what we believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed.
Our statements and opinions are subject to change without notice and should be considered only as part of a diversified portfolio. You may request a free copy of the firm’s Form ADV Part 2, which describes, among other items, risk factors, strategies, affiliations, services offered and fees charged.
Past performance is not an indication of future returns. Tax, legal and insurance information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice, or as advice on whether to buy or surrender any insurance products. Personalized tax advice and tax return preparation is available through a separate, written engagement agreement with Adviser Investments Tax Solutions. We do not provide legal advice, nor sell insurance products. Always consult a licensed attorney, tax professional or licensed insurance professional regarding your specific legal or tax situation, or insurance needs.
Companies mentioned in this article are not necessarily held in client portfolios and our references to them should not be viewed as a recommendation to buy, sell or hold any of them.
© 2021 Adviser Investments, LLC. All Rights Reserved.