While the Covid-19 virus has altered lifestyles in some ugly ways, the worldwide pandemic has also caused some changes for the good. For example, more of us now see the value of building an emergency fund to take us through hard times. Coronavirus may have been a wake-up call.
Americans who had viable resources to cover job losses or furloughs had far less potential for panic than those without much money to spare. Families that followed conventional wisdom and saved some money in an emergency fund have been able to breathe easier. Those who set aside financial resources equal to at least six months of their income suffer less stress and can ride out most of life’s calamities.
Interest in starting emergency funds for tough times has risen exponentially with the coronavirus. A few questions that are asked more often since the onset of the pandemic include:
Q. I’d like to have an emergency fund, but how can I build one when every paycheck disappears before the next one arrives? A. Make building an emergency fund a priority. Save for life’s setbacks before spending a dime. The best way is to set up an automatic savings plan where a portion of your salary goes electronically into your emergency account before you get your hands on it. You won’t even miss the $50 or $100 per pay period that doesn’t go into your debit or checking account.
Q. Does it matter where emergency savings are kept? A. You could put the money under your mattress and hope there’s never a fire or a burglary at your house, but why not earn a little interest on your savings? A certified financial planner can help you decide where your emergency fund is safe, accessible when needed, and earns the best returns. That will vary according to your circumstances.
Q. Couldn’t I just use a regular savings account for my emergency fund? A. Yes, you could, but your money won’t grow much there, as savings accounts pay notoriously low interest rates. Money market accounts, short term certificates of deposit; and in some cases, even Roth IRAs, may make more sense for you. Again, that all depends on each individual’s variables, such as:
- Which types of accounts you already own.
- How many assets you have already accumulated.
- What other sources of income are available to you in various types of emergencies.
Saving strategies are personal
If you’re serious about saving for emergencies, or college expenses, retirement, or building future wealth for yourself and your family, you should find out your best options from a certified financial planner. One size does not fit all. Your individual circumstances will determine the best financial strategies for you.
Manage Your Money . . . financial facts for a brighter future provided by Advancd Asset Management LLC
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