Emergency funds are one of the most ignored forms of financial planning. It’s easy for people to get swept up in the whirlwind of daily life, particularly with the demands of immediate expenses and short-term financial goals. If this happens, a critical aspect of financial stability – the emergency fund – can get overlooked.
A well-funded emergency fund can mean the difference between a massive financial catastrophe and a minor setback. As the name suggests, emergency funds are savings specifically set aside to cover any unexpected financial emergencies, from car breakdowns to job losses. A solid emergency fund means that you won’t be forced to rely on high-interest loans or credit cards if you are faced with unexpected expenses.
So, how should you construct an emergency fund that makes sense for you and your family?
First and foremost, a general rule of thumb is that you should plan to save between three and six months’ worth of living expenses. This can vary to some degree depending on existing savings and other individual circumstances, but keep this ballpark figure in mind as you plan.
When setting up an emergency fund, first consider where you are going to keep your savings. If you work with a wealth management company like our team here at GDS, reach out to your financial planner. They will be able to help you identify what type of account will offer the liquidity you need while also earning you interest. If you do not work with a financial planner, consider a high-yield savings account. There are a variety of options available at most major banking institutions. Interest rates vary widely, so make sure to do your research to determine which option is going to provide you with the most value.
After setting up your new emergency fund, sit down with your budget and determine how much you can begin to contribute on a recurring basis. Even if you begin with something as small as $50 each month, it will add up over time. With any savings account, consistency is key. And eventually, provided you don’t need to use it first, your emergency fund will become fully funded, and you will no longer need to make monthly contributions.
If this seems like a daunting, time-consuming task, consider contributing major windfalls to your emergency fund to help it grow more quickly. Rather than using tax refunds or year-end bonuses for fun expenses this year, think about putting them towards a practical, necessary expense. With a few short-term sacrifices like this, your emergency fund will likely be fully funded in no time at all!
An emergency fund allows you to face unexpected financial challenges with confidence. Give yourself the peace of mind that comes with knowing that your financial health can be maintained for a period of time, should the worst occur. And, as always, if you have any questions about how much money should be in your emergency account, where you should establish your fund, or how you should save for it, don’t hesitate to reach out to one of our team members. You can call (469) 212-8072 or visit www.gdswealth.com. We would be happy to help you.
Investment advice offered through GDS Wealth Management, a registered investment adviser in Flower Mound, TX. This blog does not constitute advice or a recommendation or offer to sell or a solicitation to deal in any security or financial product. It is provided for informational purposes only and on the understanding that the recipient has sufficient knowledge and experience to be able to understand and make their own evaluation of the proposals and services described herein, any risks associated therewith, and any related legal, tax, accounting, or other material considerations. To the extent that the reader has any questions regarding the applicability of any specific issue discussed above to their specific portfolio or situation, prospective investors are encouraged to contact GDS Wealth Management at (469)212-8072 or www.gdswealth.com or consult with the professional adviser of their choosing.
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