How Strong Are Your Passwords?

Have you ever had one of those months? The water heater stops heating, the dishwasher stops washing, and your family ends up on a first-name basis with the nurse at urgent care. Then, as you're driving to work, you see smoke coming from under your hood. Bad things happen to the best of us, and sometimes it seems like they come in waves. That's when an emergency cash fund can come in handy. One survey found that nearly 25% of Americans have no emergency savings. Another survey found that 40% of Americans said they wouldn't be able to comfortably handle an unexpected $1,000 expense.^1,2

How Much Money?

How large should an emergency fund be? There is no “one-size-fits-all” answer. The ideal amount may depend on your financial situation and lifestyle. For example, if you own a home or have dependents, you may be more likely to face financial emergencies. And if a job loss affects your income, you may need emergency funds for months.

Coming Up with Cash

If saving several months of income seems unreasonable, don't despair. Start with a more modest goal, such as saving $1,000, and build your savings a bit at a time. Consider setting up automatic monthly transfers into the fund. Once your savings begin to build, you may be tempted to use the money in the account for something other than an emergency. Try to avoid that. Instead, budget and prepare separately for bigger expenses you know are coming.

Where Do I Put It?

Many people open traditional savings accounts to hold emergency funds. They typically offer modest rates of return. The Federal Deposit Insurance Corporation (FDIC) insures bank accounts for up to $250,000 per depositor, per institution, in principal and interest.³ Others turn to money market accounts or money market funds in emergencies. While money market accounts are savings accounts, money market funds are considered low-risk securities. Money market funds are not backed by any government institution, which means they can lose money. Depending on your particular goals and the amount you have saved, some combination of lower-risk investments may be your best choice.

Money held in money market funds is not insured or guaranteed by the FDIC or any other government agency. Money market funds seek to preserve the value of your investment at $1.00 a share. However, it is possible to lose money by investing in a money market fund.⁴

Money market mutual funds are sold by prospectus. Please consider the charges, risks, expenses, and investment objectives carefully before investing. A prospectus containing this and other information about the investment company can be obtained from your financial professional. Read it carefully before you invest or send money.

The only thing you can know about unexpected expenses is that they're coming. Having an emergency fund may help to alleviate stress and worry that can come with them. If you lack emergency savings now, consider taking steps to create a cushion for the future.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

1. MarketWatch.com, 2020
2. Bankrate.com, 2021
3. FDIC.gov, 2022
4. Investopedia.com, 2021

Money can be a complex thing. No, I’m not necessarily talking about the stock market or the emergence of cryptocurrencies. I’m talking about how every financial decision you make affects all the others. It sounds like a simple enough theory, but when it comes time to putting it into action, it’s often difficult to see through.

I see many clients who come in clearly stating their goals: they want to retire, they want to start their own business or pay for the children’s college education. They want to be financially independent. Yet, when we look at what they’re doing with their finances, we find that their actions may be working against their goals. That daily Starbucks habit has a different cost when you calculate how much you’ve spent in a given month that could have been used towards other expenses. For those who are constantly leasing new vehicles, those payments that never end take on a different perspective when you consider how they could have been applied to a down payment for a house.

We see it now with millennials struggling under immense student loan debt. While much of their income is funneled towards basic needs and paying down debt, little is left for necessary things like amassing an emergency fund and saving for retirement, let alone other milestones like purchasing a home. Putting off funding these other items can have a serious detrimental effect down the road. Furthermore, while millennials have grown to be the largest generations purchasing homes1, this major decision has prompted additional complications like borrowing from retirement to afford a down payment or underestimating ongoing maintenance cost. In fact, based on a survey by Bank of the West, 68 percent of millennial homeowners now have regrets about buying their home2 because every decision made truly impacted everything else.

Things can get especially tricky when decisions are being made by more than one person. Couples can have household goals, but if they’re not united in working towards them, these goals can often get sidelined. Perhaps they’re trying to save for a house, but one of them isn’t sticking to their plan. Maybe they’ve been diligently saving for retirement when one wants to take a major withdrawal to start their own business. Sometimes it can be as simple as not even bothering to discuss the household’s financial goals. Very often, if you’re not working together, you’re working against one another.

Please understand, I’m all for enjoying your hard-earned money. Sometimes, though, difficult choices have to be made. Perhaps it’s deciding to put off that trip with friends to pay off your credit card, or eating out less to build up your emergency fund. I remember being in that predicament when my family first moved into our home – we lived without furniture in two of the rooms! You see, the key to your personal financial success isn’t typically making more money. It’s really about being aware of your financial behavior and of how your daily financial decisions impact your long-term fiscal future.

1. https://www.housingwire.com/articles/42748-millennials-lead-all-other-generations-in-buying-homes

2. https://www.cnbc.com/2018/07/18/most-millennials-regret-buying-home.html