Emergency Fund Essentials: Financial Preparedness Insights
Americans face challenges in covering unexpected expenses, underscoring the importance of emergency funds. With statistics revealing financial vulnerabilities, proactive steps like setting savings goals and reducing high-interest debt are vital for financial stability and debt avoidance. Building and maintaining an emergency fund can provide a safety net during uncertain times and help individuals avoid falling into debt traps.
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You Need One (but do you have one)? Can you cover an unexpected $400 expense? Four in ten Americans can't. How does that make you feel? Source: Federal Reserve Board, CNN.com, 5/22/2018
Some 56% of Americans are unable to cover an unexpected $1,000 bill
Some 56% of Americans are unable to cover an unexpected $1,000 bill https://www.principal.com/individuals/build-your- knowledge/real-life-tips-help-you-build-emergency-fund
Emergency Fund Nearly 40% of people who had emergency savings prior to March 2020 dipped into those funds during the pandemic. - 2021 survey conducted by YouGov for Forbes Advisor 46% (of FT workers) who didn t think they needed an emergency fund before the pandemic say they do now. - www.cnbc.com/2022/01/07/no-emergency-savings-new-workplace-benefits-aim-to-help.html
Emergency Fund Helps Keep You Out of Debt? It s a good idea to have some amount of easily-accessible money however small in your budget to tuck into an emergency fund every month. "One of the first steps in climbing out of debt is to give yourself a way not to go further into debt." Liz Weston, Nerdwallet columnist Without an Emergency Fund, where would you get cash quickly?
How Much Should I Have in my Emergency Fund? You may want to adjust what you keep in an emergency fund based on How unstable is your job or employer Your risk factors for emergencies (kids, commute, housing, etc.) How much high-interest debt you have If you have a large balance on a high-rate credit card, paying down some of that debt makes sense as long as you keep dropping the balance on that card.
Start Working on Your Emergency Fund Set a reasonable goal, and set milestones (Want to set aside $1000, by saving $40 every pay period for a year) Use whatever self-control (or self-discipline) you need to keep that emergency fund growing. Craving Donato s Pizza is not considered an emergency. Having the funds to go to a friend s out-of-town funeral is an emergency. Set it up to be an automatic transaction taken directly from your pay. Piggy banks still work save $1 & $5 bills and coins into it
Stash Your Cash (Open a separate account for your Emergency Fund) Set aside funds in a separate account, where funds won t get mixed in with regular spending Easy to get to (in an emergency) but not too easy (temptation) - You may not want debit card access to your Emergency Fund Safety is important. (Risky investment accounts are not a great idea) Once you get a good base, consider other safe options like money markets or certificates with higher yields If temptation is just too much, consider a different financial institution for your savings (out-of-town location).
Take Advantage of Windfalls if possible Commit to saving all (or a percent) of yard sale proceeds to Emergency Fund Bank part (or all) of your Income Tax Refund, bonus, birthday cash, etc. If possible, set reimbursement checks aside for your emergency fund Take advantage of smaller windfalls like cash back apps Find a side hustle (PT job) and bank it
Reduce Your Expenses Look at the big expenses (automobile, house & taxes & insurance, storage units, late fees, etc.) Look at little expenses (streaming services, coffee, clothing, entertainment choose free concert vs. dinner & movie) A little sacrifice now pays off later. (Free water instead of $2 pop x 365 days = $730 saved and you ve avoided 91,250 calories--more than 26 pounds a year) Plan ahead for expenses like birthday gifts, back-to-school, vehicle brakes and tires, etc. Keep what you already earned watch for scams, lending $ to others, cosigning loans, etc.
Dont Build Your Emergency Fund by Adding Debt If you re building your Emergency Fund, but your credit card debt is growing too, you re no further ahead. Be realistic with your goals. If you re living too tight , you ll not stick with the savings habit. Is your partner/spouse on board with building an Emergency Fund? Its far better (and easier) to build your fund as a team.
Dave Ramsey Financial Advisor TV and Radio host Financial Peace How important is an emergency fund An emergency fund converts a crisis into an inconvenience. How Twist and wring out the budget, work extra hours, sell something, or have a garage sale, but quickly get your $1,000. Most of you should hit this step in less than a month. If it looks as though it is going to take longer, do something radical. Deliver pizzas, work part-time, or sell something else. Get crazy. You are way too close to the edge of falling over a major money cliff here. Remember, if the Joneses (all the broke people) think you are cool, you are heading the wrong way. If they think you are crazy, you are probably on track.
Suze Orman American financial advisor Author, and podcast host The security of having an emergency fund A big part of financial freedom is having your heart and mind free from worry about the what- ifs of life.
The Balancing Act: Build Emergency Fund or Pay Down A Credit Card Interest rates earned on savings are less than 1%. Credit card rates may be 15% or higher. Should I pay down my credit card first, before building a savings account? Which are you more committed to do? How to keep that credit card debt from coming back up again? (Ideally, credit cards should be under 33% of available limit for best lift on your credit score.) Do you have the self-discipline to pay down a credit card and then leave the available line of credit as your back-up emergency fund?
More to Consider Your retirement funds shouldn t be considered Emergency Funds. That s long term, and there are fees, penalties and taxes. Chances are, if you save up a nice amount, you won t need the entire Emergency Fund all at once but you never know. In current economic situations, your savings account is going to be losing to inflation. Once you get your safe amount (like 3-6 months of living expenses), you might look for other safe options to invest your funds. HSAs (Health Savings Accounts) are another financial wellness benefit that employers are offering to help workers build emergency savings. www.cnbc.com/2022/01/07/no-emergency-savings-new-workplace-benefits-aim-to-help.html
Reasons to Start an Emergency Fund Now Life happens. Inflation making that emergency more expensive (repairs, etc.) Inflation makes your income not go as far as it did. Concerns of a recession or unemployment increasing creates uncertainty. A healthy emergency fund helps you through that uncertainty.
PS: Keep Building Your Retirement The earlier you start saving, the more you ll have at retirement, thanks to growth and compounding interest but don t touch it. Snowball Effect: Even a small amount of savings can grow significantly over time. The sooner you start makes a huge difference in the end.
Final Thoughts View your emergency fund like an insurance policy. Once you have it, guard it carefully. It s not a piggy bank. You should not using it for incidental expenses. As your salary rises (or if your job/income becomes less certain), be sure to up the amount to match your new situation.
Warren Buffett CEO of Berkshire Hathaway Successful investor | Net worth of over $116 billion as of May 2022 | World's sixth-wealthiest person. On impulse buying or extravagant spending If you buy things you don t need, soon you will have to sell things you need. On budgeting and saving Do not save what is left after spending, but spend what is left after saving. On long-term planning Someone s sitting in the shade today because someone planted a tree a long time ago.
Thank you! Lisa Clark Manager, Delaware 33 London Rd by Walgreens lclark@cescu.com 740-363-8118 Karen Bell kbell@cescu.com 740.263.5088 Questions? We re glad to help answer any question you may have. Jay McLaughlin jmclaughlin@cescu.com 740.263.5101
