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Nine Reasons to Boost Your Emergency Savings
We all know life happens. No amount of planning can prepare you for all that may come your way. Job loss, divorce, illness, or the need to step out of the workforce to care for an aging parent are just a couple of examples where having several months’ worth of expenses set aside in a savings account can help at least cushion the financial impact of these life events. With the new year just beginning, what better time to begin building or replenishing your emergency fund?
A 2023 survey by Bankrate discovered that nearly two thirds of Americans would need at least six months of emergency savings covering their expenses to feel secure.* That said, the study revealed that less than a third could do so.
Here are some key reasons why having an emergency fund is essential:
1. Financial Security: An emergency fund provides a sense of security, knowing that you have funds available to handle unforeseen circumstances. It prevents you from having to rely on high-interest credit cards, loans, or borrowing from friends and family when emergencies arise.
2. Unforeseen Expenses: Life is full of unexpected events, such as medical emergencies, car repairs, home repairs, or sudden job loss. Having an emergency fund ensures that you can cover these expenses without jeopardizing your financial well-being.
3. Reduced Stress: Financial stress can take a toll on your mental and physical health. Knowing that you have a financial cushion in the form of an emergency fund can reduce anxiety and help you sleep better at night.
4. Avoiding Debt: Without an emergency fund, people often resort to taking on debt to cover unexpected costs. Accumulating debt can lead to a cycle of repayment and interest charges that can be difficult to escape. An emergency fund helps you avoid falling into this debt trap.
5. Maintaining Financial Goals: An emergency fund acts as a buffer, allowing you to continue working towards your financial goals, such as saving for retirement, buying a home, or funding your children’s education, even when unexpected expenses occur.
6. Flexibility and Choices: Having an emergency fund gives you options. You can make decisions based on what’s best for your situation rather than being forced into desperate actions due to a lack of funds. This flexibility can be especially important in times of crisis.
7. Financial Independence: An emergency fund can contribute to your financial independence. It provides a safety net that allows you to make choices about your career, lifestyle, and future without being overly reliant on external sources of financial support.
8. Peace of Mind: Knowing that you have money set aside for emergencies provides peace of mind. You can navigate life’s uncertainties with greater confidence, knowing that you have a financial cushion to fall back on.
9. Financial Discipline: Building and maintaining an emergency fund encourages budgeting, saving, and smart financial decision-making, which are important habits for long-term financial success.
* The size of your emergency fund may vary depending on your individual circumstances and risk tolerance.
• This post is general education – not investment, tax, or legal advice •
Christopher Lazzaro, ChFC®
Founder and President at Plan For It Financial, LLC
Following a more than 30-year career in investment management and insurance, I founded Plan For It Financial. In doing so, I followed my passion for helping others gain a deeper understanding of their personal finances. Distilling complex financial topics and presenting them in a straightforward manner is central to my approach and process. I take great pride in and am grateful for the opportunity to guide clients as they navigate the challenge of balancing living for today, while maintaining an eye toward the future. Bridging this gap through education, realistic goal setting, establishing priorities, and practical, actionable advice without the unnecessary layers of financial jargon and complexity is my firm’s primary value proposition.