An emergency fund may
help alleviate the stress associated with a financial crisis.
Provided by Taylor McClish
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, giving yourself
your best, “You can make it!” pep talk, you see smoke seeping out from under
your hood.
Bad things happen to the best of us, and instead of conveniently
spacing themselves out, they almost always come in waves. The important thing
is to have a financial life preserver, in the form of an emergency cash fund,
at the ready.
Although many people agree that an emergency fund is an important
resource, they’re not sure how much to save or where to keep the money. Others
wonder how they can find any extra cash to sock away. One recent survey found
that 29% of Americans lack any emergency savings whatsoever.1
How Much Money? When starting an emergency fund, you’ll want to set a target amount. But how much is enough? Unfortunately, there is no “one-size-fits-all” answer. The ideal amount for your emergency fund may depend on your financial situation and lifestyle. For example, if you own your home or provide for a number of dependents, you may be more likely to face financial emergencies. And if the crisis you face is a job loss or injury that affects your income, you may need to depend on your emergency fund for an extended period of time.
Coming Up with Cash. If saving several months of income seems an
unreasonable goal, don’t despair. Start with a more modest target, such as
saving $1,000. Build your savings at regular intervals, a bit at a time. It may
help to treat the transaction like a bill you pay each month. Consider setting
up an automatic monthly transfer to make self-discipline a matter of course.
You may want to consider paying off any credit card debt before you begin saving.
Once you see your savings begin to build, you may be tempted to use the
account for something other than an emergency. Try to budget and prepare
separately for bigger expenses you know are coming. Keep your emergency money
separate from your checking account so that it’s harder to dip into.
Where Do I Put It? An emergency fund should be easily accessible, which
is why many people choose traditional bank savings accounts. Savings accounts
typically offer modest rates of return. Certificates of Deposit may provide
slightly higher returns than savings accounts, but your money will be locked
away until the CD matures, which could be several months to several years.
The Federal Deposit Insurance Corporation insures bank accounts and
certificates of deposit (CDs) up to $250,000 per depositor, per institution in
principal and interest. CDs are time deposits offered by banks, thrift
institutions, and credit unions. CDs offer a slightly higher return than a
traditional bank savings account, but they also may require a higher amount of
deposit. If you sell before the CD reaches maturity, you may be subject to
penalties.2
Some individuals turn to money market accounts for their emergency
savings. Money market funds are considered low-risk securities, but they’re not
backed by the federal government like CDs, so it is possible to lose money.
Depending on your particular goals and the amount you have saved, some
combination of lower-risk investments may be your best choice.2
Money held in money market funds is not insured or guaranteed by the
Federal Deposit Insurance Corporation 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.
Money market mutual funds are sold by prospectus.2
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 – for everyone. But having an emergency fund may help alleviate the
stress and worry associated with a financial crisis. If your emergency savings
are not where they should be, consider taking steps today to create a cushion
for the future.
Taylor McClish may be reached at (503) 239-3060 or Taylor.McClish@cunamutual.com
This material was prepared by MarketingPro, Inc., and does not
necessarily represent the views of the presenting party, nor their affiliates. This
information has been derived from sources believed to be accurate. Please note
- investing involves risk, and past performance is no guarantee of future
results. The publisher is not engaged in rendering legal, accounting or other
professional services. If assistance is needed, the reader is advised to engage
the services of a competent professional. This information should not be construed
as investment, tax or legal advice and may not be relied on for avoiding any
Federal tax penalty. This is neither a solicitation nor recommendation to
purchase or sell any investment or insurance product or service, and should not
be relied upon as such. All indices are unmanaged and are not illustrative of
any particular investment.
Securities sold, advisory services offered through CUNA Brokerage Services, Inc. (CBSI), member FINRA/SIPC, a registered broker/dealer and investment advisor. CBSI is under contract with the financial institution to make securities available to members. Not NCUA/NCUSIF/FDIC insured, May Lose Value, No Financial Institution Guarantee. Not a deposit of any financial institution. CUNA Brokerage Services, Inc., is a registered broker/dealer in all fifty states of the United States of America.
Citations.
1 -
cnbc.com/2018/07/02/about-55-million-americans-have-no-emergency-savings.html
[7/6/18]
2 - investor.vanguard.com/investing/cash-investments [12/13/18]
2 - investor.vanguard.com/investing/cash-investments [12/13/18]