The Emergency Corpus

The Emergency Corpus

Being Emergency-Ready.

  

Saving money isn't always easy, but it's likely to be less painful than the alternatives. A recent study found that many of the people surveyed currently or recently:

  

1. Had unpaid medical bills: 26%.
2. Overdrew their checking account: 22%.
3. Took a loan from their retirement account: 14%.
4. Took a hardship withdrawal from their retirement account: 10%.
5. Had more than one late mortgage payment: 13%.
6. Filed for bankruptcy: 3.5%.

Source: FINRA Investor Education Foundation National Financial Capability Study, 2012.

An emergency fund is a stash of money set aside to cover the financial surprises life throws your way. These unexpected events can be stressful and costly.

Here are some of the top emergencies people faces:

• Job loss.
• Medical or dental emergency.
• Unexpected home repairs.
• Car troubles.
• Unplanned travel expenses.

Benefits of having emergency money

Aside from financial stability, there are other pros to having an emergency reserve of cash.

 

It helps keep your stress level down.

It's no surprise that when life presents an emergency, it threatens your financial well-being and causes stress. If you're living without a safety net, you're living on the "financial" edge—hoping to get by without running into a crisis. Being prepared with an emergency fund gives you confidence that you can tackle any of life's unexpected events without adding money worries to your list.

It keeps you from spending on a whim.

You've heard the saying "out of sight, out of mind." That's the best way to store your emergency money. If the cash is only as far away as your closest debit card, you may be tempted to use it for something frivolous like a designer cocktail dress or big-screen TV—not exactly an emergency. Keeping the money out of your immediate reach means you can't spend it on a whim, no matter how much you'd like to. And by putting it in a separate account, you'll know exactly how much you have — and how much you may still need to save.

It keeps you from making bad financial decisions.

There may be other ways you can quickly access cash, like borrowing, but at what cost? Interest, fees, and penalties are just some of the drawbacks.

How much should you have in your emergency fund?

In a nutshell, you should have at least 3 to 6 months' worth of expenses—but the exact amount depends on a few variables.

Putting aside 3 to 6 months' worth of expenses is a good rule of thumb, but sometimes it's not enough. If you're able, you might want to think about expanding your emergency savings.

Here are some scenarios where having more in your savings could benefit you:

• During a recession (when unemployment rates are higher and the length of unemployment is often longer).
• If you're in a high-risk industry where layoffs are common.
• If your income isn't steady.
• If you're retired (and most of your money is in more-volatile stock and bond investments).

Need help getting started?

FINVESTEDGE implement this plan easily by saving for both the long term and the short term. Get started here.   

Have your Wealth Check up done

 

The best way to do this exercise is to follow the SMART formula - make sure your goals are

Specific, Measurable, Attainable, Relevant and Timely.

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Happy Investing!

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