The Importance of Emergency Savings
Curtis has earned the Life and Health Insurance licensure, has passed the Series 66 examination, and has earned a degree from the University of Nevada, Reno. He has over 20 years of experience in the financial industry, helping others protect, grow and manage their wealth. Curtis helps clients create customized strategies for their portfolios based on their unique financial goals.
THE IMPORTANCE OF EMERGENCY SAVINGS
We spend a lot of time in these blogs discussing things from tax strategies, investments, income planning, etc. Essentially, we focus on things that are important to many pre-retirees and retirees. Occasionally, I like to put something out there that focuses on some basics for things that young people should be focusing on, or young families. Many of my clients and prospective clients have kids or grandchildren. They usually have a lot of questions but don’t receive a lot of answers as they still have a long way to go to fully utilize the services of a financial advisor. So, today I want to focus on why it is important to have emergency savings.
When something unforeseen happens, such as needing a major car repair or replacing the roof on your house because a huge windstorm did major damage to it, the first place we should look to is our emergency savings. This should be one of the first places young people or young families should be putting money outside of their 401k. This is important for quite a few reasons, which I will discuss in the following paragraphs.
First and foremost, having emergency savings may help you to prevent large credit debt. We all know that interest rates on credit cards are very unfavorable, and it is one of the quickest ways to lose money. Credit cards usually carry an interest rate anywhere from 16% to 25% and sometimes even higher. If you can avoid using credit and having that balance carry over to where you are paying those percentages of interest, you are ahead of the game. One of the biggest headwinds people face with their finances is credit card debt.
Second, life happens. Sometimes, we lose a job or want to change careers. Without an emergency savings account to keep you afloat in these times, relying on credit can have quite an adverse effect on your personal finances. If you have emergency savings in place, it can cushion the blow of being laid off or wanting to switch careers. Not only does this help financially, but I can also say it has quite a positive effect on keeping your stress levels low in what is considered one of the most stressful situations people can go through.
There are a ton of reasons why an emergency savings account is important, I have just listed two of the major reasons above. Here are some more reasons why an emergency fund is important. Any young person or young family starting out on their financial path should work to create an emergency savings plan that they are comfortable with. The old rule was to have six months of expenses on hand if something were to happen. That is a good place to start, it may not be ideal for everyone, but it sets a target to reach. I know life is hard and it isn’t easy to put money away in a 401k, pay bills, and work on your emergency savings at the same time; but if you are able to create a plan for building your emergency savings, you may just be creating the safety and stability that will keep you out of financial trouble in the future.
Based in Reno, NV, Cornerstone is for individuals and families looking to grow wealth, protect and preserve their life savings, and plan for the distribution of their estate in a tax-efficient manner through a tailored strategy. Schedule a time to discuss your financial goals with us.