We have all seen the headlines regarding the recent partial government shutdown that dramatically impacted some families financial well-being. As a former federal employee, I sympathize with all the men and women who were impacted. If the recent shutdown has taught us anything, it is that you can never be overly prepared for a sudden loss of income. According to 2016 GoBankingRates survey, 69% of U.S. adults admitted to having less than $1,000 in the bank, while 34% said they have no savings at all.
How prepared are you for a financial emergency?
Not having an emergency fund is setting yourself up for failure in the event something unplanned happens to your ability to earn income. What will you do if your car breaks down, washing machine stops working, you lose your job, or you have an unexpected medical emergency? It is always better to over-prepare for the worst and hope for the best.
Having emergency cash reserves is there so that you can cover your living expenses if you experience everything from minor to major financial setbacks. This pot of cash prevents you from relying on high-interest loans or credit cards that can derail your financial goals and is crucial to keeping your financial house in order.
Here are several tips to consider as you build and maintain your emergency fund.
When it comes to saving there is an old adage that says, “The best day to start was yesterday. The next best time is today.”
Even though $1,000 can seem like a huge and unattainable savings goal, it is a good starting point if you don’t have any emergency cash yet. Dave Ramsey, best-selling author of The Total Money Makeover and founder of Financial Peace University is a huge proponent of getting that first thousand dollars saved.
By creating attainable mini-goals along the way, you are more likely to achieve your emergency cash savings goals. The initial big goal is to save $1,000. After that, you can now move to $2,000 and then eventually attain the ultimate objective of having three to six months of income saved. How much you should have saved is based on how much you would need to support your living expenses for as long as you think it would take to secure another stream of income. As a CERTIFIED FINANCIAL PLANNER™ professional, I can’t hammer the point home enough. You don’t want to find yourself unable to pay your rent or mortgage and put food on your table if you miss a couple of paychecks.
Want a sure-fire way that you’ll get that emergency savings funded? Automate your savings.
Where To Save
Now that you have your saving goals mapped out, “Where do I save?” You understand that placing money in a piggy bank or under the mattress is not the best option. A high-yield-savings account, on the other hand, is a great place to save.
High-yield savings accounts are accounts that pay higher interest rates than your traditional bank savings accounts, allowing savers to reach their financial goals faster. Plenty of your major banks offer high-yield savings account options through their online savings programs.
Just be sure that whatever institution you go with is FDIC-insured. These accounts are great to build your emergency fund because you will accumulate more interest than with a traditional savings account and still have access to the funds. As of February 2019, here is a list of the best interest rates being offered by high-yield savings accounts according to Bankrate.
Why It’s Important
Life has many unexpected twists and turns. Just as we saw a few weeks ago, even government employees can face a sudden loss of income. There are no guarantees except for the ones you create for yourself.
Many families do not have any savings at all and rely on credit cards in the event of an emergency. Credit cards are not an emergency fund. You can put yourself into a high-interest debt situation fast and derail your short and long-term financial goals.
Keep these emergency savings tips in mind as you continue on your journey to financial independence. Regardless of what happens in your life, being prepared for life’s inevitable “oh no” moments is key to securing your financial success. If you follow these tips that I outlined above, you can put yourself in a better place financially.
HANDY, DANDY & ACTIONABLE MONEY-SAVING TIP:
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NEXT FRANKLY SPEAKING POST…
Be sure to visit us again in two weeks for the next issue of FRANKly Speaking where I’ll be covering ways small business owners can get their finances organized (and stay organized) for your upcoming tax meetings.
As always, I invite you to reach out to me – in real life – with any comments, feedback, or questions! [email protected]. Are you ready to take the first step towards securing your financial future? If so, schedule your free 45-minute no-obligation consultation with me today. Schedule Your Consultation with Frank.
Disclaimer: The information contained in this article is for informational purposes. None of the information provided in this article is intended as investment, tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. Please consult with your accountant, finance professional, and/or legal counsel regarding your specific circumstance. Reproduction of this material is prohibited without written permission from Frank Shields, and all rights are reserved. Read the full Disclaimer.