Many have a tendency not to plan for the unexpected. Unfortunately, life can be filled with unforeseen hardships. More often than not, these critical financial events can be very costly and even detrimental to one’s financial soundness. So how do you plan for the unplanned? Since life can be full of unanticipated events, it is important for inpiduals to take sufficient time to form a strategy to afford such emergencies. This is why it is crucial to have excess funds readily available. There are many reasons why an emergency fund is an integral component of a sound financial life.
Although the concept is rudimentary, it is still important to know when an emergency fund is used. This is an account that is used to accrue funds to be utilized in the event of… you guessed it, an emergency. Emergencies can take on many forms and it is important to be aware of the different scenarios and likelihood that these scenarios will occur. Do you really want to push the envelope by waiting until it is too late?
From the loss of a job, to an illness, injury or even the unexpected major home repair, these unexpected financial emergencies take on many forms. The main purpose of this fund is to improve one’s financial security. By creating a safety net of funds, you give yourself the ability to afford emergency expenses and reduce the need for high interest debt such as loans or credit cards. You will only exacerbate the issue by taking on additional debt; ultimately this will cost you more in the end. The emergency fund will also allow you to keep your portfolio intact without the need to liquidate funds at an inopportune time.
Additionally, this fund can help to mitigate the financial stress of unexpected happenstances. The financial preparedness associated with an emergency fund can help to make an unexpected event more manageable. Due to our ever-changing economy and the risk which plagues different industries at different times, job loss is prevalent fear amongst certain employees. No one ever expects this to happen, however, you can plan proactively in the event that it does. An emergency fund should contain (at a minimum) approximately three months’ worth of living expenses. This buffer will enable you to exert your efforts on a more productive job search.
Adding money to a savings account is a great way to start. It’s simple to use and the costs associated with a savings account tend to be minimal. A savings account also adds the convenience factor. This is crucial as it offers liquidity, or ease by which you can convert the funds into readily available cash. Everyone’s financial situation differs. The amount you should save is reliant on your own specific situation and circumstances. That is why it is important to consider the financial scope of the variable expenses that you may incur. Do you have children? Do you carry substantial debt? These are just some of the many questions you need to ask yourself when determining what size emergency fund will fit your needs. Depending on your life circumstances, it may make sense to have between 3-18 months’ worth of expenses.
The most important aspect of an emergency fund is actually starting one. Many times we procrastinate saving money because it is always easier to “save tomorrow”. An emergency fund can help to manage the financial stress resulting from rough unexpected hardships. Don’t wait for the unexpected to happen, be prepared and proactive. Be sure to check out the latest Mitlin Minute on emergency funds! Contact Mitlin Financial, Inc. today at (631) 952-4466 x12 and see how we can help to facilitate an emergency fund that is suitable for you.
Disclaimer: This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.