When I talk with clients about investing their money, I can be flexible. However, the one thing that I insist they do is set up an emergency fund.
An emergency is any situation that affects your health or capacity to earn money. It is important to create an emergency fund to safeguard your future from financial strain. For example, the Federal Reserve conducted a study that found more than 25 percent of adults neglected necessary medical care in 2017 due to the cost. Do not let this be you. Take the steps needed to keep you and your family financially secure.
A general rule of thumb is to have three to six months of savings put away. This number is highly personal to your situation. The amount of savings you need depends on circumstances such as if you are married, have children, or care for an aging parent.
Creating an emergency fund can feel overwhelming, especially if you are already saving for your retirement and children’s college educations. However, if you put away just $20 a week, by the end of the year, you will have $1,000 saved for your emergency fund. Do not stop there. Make saving a habit and grow your emergency fund larger.
To house your fund, find a vehicle that allows quick and easy access to the money. However, do not make it so easy to tap that you are tempted to use it in non-emergency situations. A basic savings account or money market account may be the best choice. Remember to look for accounts that don’t have annual fees.
Make saving for an emergency a priority so that you stay financially prepared and secure for anything life throws your way.
Joseph Radzwill is Senior Vice President and Financial Advisor with the Wealth Management Division of Morgan Stanley in Houston.
