Emergency Fund Fundamentals

Emergency Fund Fundamentals

An emergency fund forms the cornerstone of a strong financial foundation. 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: The roof springs a leak, your car breaks down, 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. While no one can predict the future, we can prepare for it.

Your rainy-day fund should be easily accessible. That doesn’t mean a cookie jar full of cash or a mattress stuffed with dollar bills, 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 through your brokerage is another.

Of course, you also need to determine how large your emergency fund should be. A long-standing rule of thumb is to keep six months of living expenses at the ready. Two-income households might budget 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 you continue to build your fund.

If you would like our assistance creating an emergency fund, determining how much should go into it and then funding it, please contact us. We are happy to help!

Any topics you’d like us to address in a future FPF section? Please contact your team or write to us at info@adviserinvestments.com. We’d love to hear your suggestions.

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