The Importance of Starting an Emergency Fund
Creating an emergency fund can be a crucial feature of your overall financial plan.
Time and time again when speaking with our clients, we like to stress the importance of creating an emergency savings sleeve in their budget and the numbers back up our thought process.
Here are some staggering statistics on why it is important to have an emergency fund:
According to Bankrate, who publishes a yearly survey on emergency savings for Americans, nearly 59% of U.S. adults said they do not feel comfortable with their current emergency savings.*
Furthermore, a study published by Lendingtree in 2023 showed that 58% of Americans do not have an emergency fund and that 49% of Americans would not be able to afford a $1,000 emergency if it happened tomorrow.**
Now, we didn’t put these statistics here to scare you if you fall into one of these categories but more so to stress the importance of starting an emergency fund as soon as possible.
Let’s dive into some of the ways you can get this started:
Budget:
First, we have to start with creating a budget. Before you know how much you can save, you have to know how much you need to spend each month to meet your needs.
One suggestion we give to clients in order to help them create a budget is to go through their last 3 months of bank statements. Here you can decipher how much you are spending on your necessities and how much you are discretionary spending.
When you are able to estimate each of these categories you can get an understanding of how your financial picture looks.
From there, we can move onto savings. How much are you saving each month? Is it for long term goals, such as retirement, short term goals, such as a renovation to your home, or a combination of both?
Having these aspects of your budget clearly defined will help you move forward in confidence towards building that emergency savings.
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Emergency Savings:
Now, let’s talk a bit more about emergency savings and what it entails. This form of savings is for things that you might not see an expense for when looking back at your past 3 months of bank statements.
Unplanned medical expenses, a busted water pipe, new car battery and much more can fall under the category of emergency expenses.
If you already run on a pretty tight budget, these types of events can be difficult to handle without an emergency savings.
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How to get started:
?Getting started on building your emergency savings is not rocket science and we do not want to make it more difficult than it has to be.
The reason we mentioned starting with your budget is because when we talk with clients, we like to see if there are areas in which they are saving and spending mindfully or if there are areas where they can improve. For example, if you buy a coffee for $5 every morning before work, you’re spending roughly $100 a month just on coffee. It may make sense for some people to cut back on those costs and make coffee at home instead, thus saving a good percentage of that $100 per month which may be able to be allocated towards your emergency savings.
One suggestion we like to give to our clients when starting their emergency fund is the “pay yourself first” budgeting habit. We discussed this briefly in an earlier blog post and essentially this method of budgeting suggests to pay into your savings before allocating your money towards other expenses. If you use this method, you can allocate a portion of your income, no matter how big or small to your emergency fund before you start your discretionary spending of that paycheck which can help build up your savings over time.
The Final Word:
The main point here is that the most important thing you can do is get started. There is no specific amount we would suggest as a universal saving method for your emergency fund but starting with whatever you can and consistently allocating money towards it can go a long way in bringing you confidence to your financial health.
Thanks for reading! Do you have questions you would like us to discuss here? Click this link to let us know and we hope you found this helpful!
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Disclaimer:
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Rockline Wealth Management (RWM) is a registered investment adviser located in Plainview, NY. RWM is registered with the U.S. Securities and Exchange Commission. Registration of an investment adviser does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the Commission.
?This blog post is a publication of Rockline Wealth Management, LLC.? Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
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