By Matt Gallagher
Your Finances
Matt Gallagher
Have you ever considered how your lifestyle and long-term goals would be affected if you suddenly faced a personal financial emergency? Whether it be the unexpected loss of a job, a large unplanned expense or a medical crisis that leaves you without income, life can be full of surprises that affect your financial stability both today and for years to come.
Luckily, with clear goals for your future, the right savings and investment strategies and a bit of discipline, you can build an emergency fund to ease the financial burden of uncertain times.
It’s true that less than half of all American adults could cover their expenses for more than a few months in the wake of a loss of income. Though it’s not something most want to think about, the need to prepare for the unknown is an important component of financial health for people across all income brackets and stages of life.
Without a reserve fund, those facing an unexpected financial hardship may turn to credit cards or other high-interest lending options, or even borrow against retirement accounts in a move that, though it may help in the short term, can set a financial plan back years. Having an emergency fund also gives you peace of mind and allows you to focus on finding a solution to your hardship, rather than worrying about covering your expenses.
Developing a plan to create and fund an emergency account – and having the discipline to stick with it – is often easier said than done.
Balancing your current needs and wants with your ability to stay on track toward your long-term financial goals can be difficult in and of itself, let alone when you’re also trying to accumulate a reserve for a rainy day. Not only does building an emergency fund take planning, it also requires patience. And what may work for one individual might not be the right formula for another. The key is to understand your specific needs and work toward a plan that allows you to comfortably and confidently grow your savings.
Because each individual’s financial needs and goals are different, using a blanket formula like storing three to six months’ worth of expenses may not always be the best approach. Factors such as your existing credit card debt, how difficult your income could be to replace and what lifestyle sacrifices you’re willing to make all need to be accounted for when determining the total that’s best for your needs.
In general, you can begin to see what your needs could be with a quick review of the following:
-Establish your long-term goals and short-term needs.
-Determine how much money you need per month to meet your lifestyle goals.
-Set a goal for how many months of income you’d like to accumulate.
The best way to build your fund is to start working toward a series of smaller, more attainable milestones. For example, if your ultimate goal is to save $25,000, break that number down into a contribution amount – daily, weekly, or monthly – that moves you toward a percentage of your total goal by certain dates.
For example, to save 5 percent of $25,000 within three months you need to make a $417 contribution per month.
Next make a regular contribution to a high-yield savings account, money market account, or other vehicle that will allow you to access the funds whenever needed until you reach your desired amount.
If you’re still unsure how to get started, or would like a more experienced perspective on the strategies that will work best for your situation, working with a professional may be a good option.
Beyond the positive impact a professional can have on your bottom line, working with a financial advisor also gives you someone to hold you accountable for reaching your goals. Most importantly, an advisor can help make sure all your financial needs are accounted for, both in the short- and long-term, so you land on your feet financially, no matter what.
Matt Gallagher is a partner and head of business development at TrinityPoint Wealth. He can be reached at 203-693-8519 or by email at mgallagher@trinitypointwealth.com.