The Scarborough Group

Dec 28, 2021

December 28, 2021 - Advertisement - Managing Partner and CFP® Professional here Scarborough Capital Management , providing individuals with wealth management and flat-fee 401(k) assistance. - Advertisement - - Advertisement - As a financial advisor, I believe that everyone – even the wealthy – can benefit from having an emergency fund as a basic tool in their financial planning. The key, and many times where people go wrong, is using it right! An emergency fund is typically at least six months’ worth of expenses set aside in a savings account or other cash management account that is easily accessible and liquid (that is, you don’t need to sell anything like a house for the money). not needed. to be available). - Advertisement - If you’ve never really had a financial emergency, you may be unclear about what an emergency fund actually is. You might be tempted to tap into those funds at a time that might perception Just like in an emergency, such as holiday shopping, buying a home, taking a family vacation, planning a wedding or even attempting to pay off debt. While all of these events can be valid reasons to dip into your savings, your savings are not your emergency fund. Have an impulsive shopping for the holidays No Like a real emergency. The point of having an emergency fund is that you can pay your bills during times of uncertainty, such as an unexpected job loss, unexpected medical bills, or navigating an unplanned transition. You don’t know when events like these will happen, so it’s wise to be prepared for when they do happen. When you’re not bringing home a paycheck or forced to make massive payments, unexpected bills can help ease stress during an already emotional time. An emergency fund is meant for events that can happen to anyone. Without the cash cushion provided by an emergency fund, you may be forced to use a credit card or take out loans or cash from a retirement fund. Before you start arguing why a destination wedding can be considered a valid reason to dip into your emergency fund, let’s take a closer look at the potential curves that life can throw at you, requiring an emergency. Fund is more suitable. Job loss, business slowdown or loss of income Any loss of income can cause disruption and distress in your life, even if your lifestyle is minimal or your net worth is high. A job loss, a downturn in your business or an unexpected drop in income, whether business or investment, can all cause a significant decline in your ability to maintain financial obligations and provide for your family. These recessions can also stem from economic or political circumstances that are beyond your control, so they may not be that easy to fix. Until your income stabilizes, an emergency fund can help provide you relief. unexpected medical expenses Medical expenses can add up quickly, especially if you or a family member requires significant or costly treatment, such as surgery, a long recovery, or an unusual illness. Don’t be fooled into thinking that medical insurance covers everything. Insurance can cover a lot of medical expenses, and comprehensive health insurance should be part of every financial plan to help with risk management. But there may be a need for medical treatment that is either not covered or not fully covered. An experimental drug, physical therapy such as acupuncture, home health care, among other things, may all be out of your coverage. unexpected repairs Unexpected repairs are often used to explain why an emergency fund is needed, simply because, at some point in their lives, nearly everyone has a $500 or $1,000 repair of a car they expect. Wasn’t. In critical car repairs you may have more than a barrel because they cannot be turned off if you want or need to steer the car. But cars aren’t the only potential sites of unexpected repairs. What if a long-reliable household appliance suddenly turns off? If you need a new refrigerator or stove, you usually need it quickly. Other home repairs, such as a new air conditioning unit or roof restoration, can be costly. And what will you do if your home and its furnishings, or your car, boat or other vehicle, are damaged by a natural disaster, such as an earthquake, fire, flood, hurricane or tornado? These are all instances where an emergency fund can ride to the rescue. unexpected trip Traveling for vacation or seeing family is usually part of your planned cash flow expenses. But what about an unexpected trip, such as finding a new job or opportunity in a new business that requires an on-site interview in a different location or finding a place to live as part of a job relocation? Or what if you had to make travel plans unexpectedly due to the illness or death of a loved one? If friends or family have suffered a prolonged illness, you may have to travel frequently. In both these cases and other cases of unexpected and unplanned travel, an emergency fund can help cover expenses and make for the last trip with a loved one! unplanned transition Unexpected life changes are changes that one does not want to plan for, but they do happen, such as a divorce or the death of a spouse. Events like these can affect every aspect of your emotional and financial life, whether you have an income in a given month or whether you have a place to live. If your spouse passes away unexpectedly without a will, you may not have access to the assets until the assets have gone through probate, which can take months. Meanwhile, divorce can be controversial. If your spouse no longer intends to support you financially or claims the home or other property, you may struggle to maintain use of it. In both cases, an emergency fund can help manage stress and disruption. Bottom-line Establishing an emergency fund and deciding on an amount that matters to you is the first step in building an emergency fund. Next, discuss your emergency fund needs with a financial advisor. Being prepared for the unexpected can help you get through these tough times a little easier. The information provided here is not investment, tax or financial advice. You should consult a licensed professional for advice regarding your specific situation. securities through a registered broker-dealer, Independent Financial Group, LLC (IFG). Member FINRA/SIPC. Advisory services offered through Scarborough Capital Management, a registered investment advisor. IFG and Scarborough Capital Management are unrelated entities Businesshala Finance Council is an invitation-only organization for executives in successful accounting, financial planning and wealth management firms. am i eligible? - Advertisement -