Preparing for a financial emergency with an emergency savings fund
Picture this: You feel like everything in your life is in order. You and your family have a good home, good health, dependable transportation, and a decent paycheck to cover your living expenses and savings.
Then disaster strikes.
The car breaks down. The basement floods. Someone gets sick. Someone loses a job. We do not want to be alarmists, but situations like these are very real and happen all the time. That is why it is in your best interest to build an emergency fund to help keep you afloat through these types of circumstances.
What should an emergency fund cover?
Your emergency fund can be used for whatever you decide constitutes an emergency in your personal life, but a lot of people save it for expenses such as:
- Job loss or pay cuts
- Damage to your home
- Damage to your vehicle
- Medical emergencies
- Pet emergencies
How much should I save in my emergency fund?
Financial experts generally recommend saving at least three to six months’ worth of your living expenses in an emergency fund. If you do not already have a budget that highlights the aspects of your monthly expenses, you need to work on an estimate.
Estimate the costs of important expenses, such as housing, food, health care, transportation, debt and utility bills. Whatever this estimate totals up to, you should aim to save at least three to six months’ worth of that amount to cover your expenses in an emergency.
How should I save my emergency fund?
You need your emergency funds to be quickly and easily accessible in the event of an emergency, so this rules out any time-locked investments, such as stocks, bonds and certificates of deposit (CDs).
One of your best options is a high-yield savings account. There are several options for high-yield savings accounts that do not require a monthly fee or a minimal balance. Your savings in a high-yield savings account will generate interest, are easy to access and are federally insured up to $250,000 if offered by a bank.
Factor in your emergency fund into your budget. Set a regular amount you can comfortably contribute each month until you reach your three-to-six-month expenses goal.
Talk to a ProVise CFP® professional about factoring an emergency fund into your personal financial plan
Building an emergency plan may be one of the best decisions you make, but it can start to feel overwhelming when you already have so many other responsibilities. A financial planner can help you build a personal financial plan that works for you and includes important items like an emergency fund.
At ProVise Management Group, our CERTIFIED FINANCIAL PLANNER™ professionals can get to know you and your current financial circumstances, goals, risk tolerance and personal values to help you develop a plan that works for you. We can also create a written plan for you at a fiduciary standard of care. All our written plans come with an unconditional money-back guarantee. If you are unhappy with your written plan, you can return it to us, and we will refund 100% of the fee paid.
Are you ready to talk to a professional about managing your personal finances? Contact ProVise today to schedule a complimentary consultation.