Emergency Planning

Emergency Planning
Emergency Planning — Save for a rainy day before it rains


Save for a rainy day before it rains

Extra cash in a separate emergency account should be part of everyone’s comprehensive financial plan. If you have unanticipated expenses because you lost your job, faced a medical expense not covered by insurance, or your roof started leaking, an emergency cash fund could cover the immediate costs and keep you from covering the cost with credit cards.

Most of us feel like it’s all we can do to keep up with day-to-day expenses and save for retirement, but creating an emergency fund should be a savings goal within your budget as well.

Build an emergency account today and you’ll feel more confident about being able to handle whatever life sends your way.

How much do you need?

Financial experts have different views on how big an emergency fund should be. Some say three to six month’s salary. Others say one year, or more. Think about your own situation and what would make you feel comfortable. Set aside at least three month’s income and then see if you can build it up from there. Even saving a little is better than nothing.

Where do you find the money?

You can’t stop paying your monthly bills and the lottery is not a reliable way to boost your income. That leaves spending cuts. What works for many people is a combination of tactics, including a few spending cutbacks, and perhaps slightly reduced payments on the credit card bill. If you’re paying high credit card interest it may not make sense to redirect those payments into your emergency fund. You may also consider a temporary reduction— not a complete shutoff— in retirement plan contributions. By examining your budget, you can shift money from one bucket to another and direct a reasonable amount into your emergency fund.

Where do you put it?

Keep your emergency cash in a low-risk liquid account such as a bank or money market account where you can withdraw it at any time. Your emergency account should be separate from other accounts so you’re less tempted to raid it for non-emergency expenses. If you have a substantial sum, you may be able to put it in a higher-rate savings account, but make sure the account does not have penalties for withdrawals. Certificates of deposit (CDs) or other timed deposits generally are not a good choice because of early withdrawal penalties.

Plan with us

It pays to be prepared for the unexpected. Start building your emergency account today and you’ll feel more confident about being able to handle whatever life sends your way.