Navigating Financial Security with Emergency Funds - Expert Edition Episode 54

Hey everyone, today, I'm going to share something really important with all of you. We're talking about emergency funds—money that you save just in case something unexpected happens, like losing your job or your car breaking down. I'll explain why it's a good idea to have this money saved and how it can stop you from worrying too much if something goes wrong. We'll also chat about how much money you should save and some cool ways to save it without feeling like it's too hard or taking too long. Plus, I've got some tips for what to do if you suddenly find yourself without a job.

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TRANSCRIPT:

[00:00:00] Naseema: What's up? What's up? What's up? My financially intentional people. How are you? Happy Tuesday. Excuse my voice. There are some bugs going around this house. So yeah, I'm just recovering and I look a mess cause I'm just curling my hair. So if you want to be entertained and see how crazy I'm looking today.

Until I take these curls apart Go ahead and watch on the financially intentional YouTube channel. Anyway, today I wanted to talk about emergency funds. Emergency funds are money put aside for emergencies and we'll talk about how much you need with the formal definition of an emergency fund and if you want to calculate.

How much you need in your emergency fund and how long it'll take you to get there. Make sure you check out my calculators at financiallyintentional. com slash tools, and you'll see a whole list of calculators. If you're a nerd like me, you can play around with those. Anyway, an emergency fund is money set aside to cover expenses in the event of lost income or other .

Unexpected expenses having an emergency fund enables you to navigate whatever life might throw at you without jeopardizing your financial security or goals. What expenses can I cover with my emergency fund? An emergency fund can cover both lost income or unexpected expenses.

For example, if you were to lose your job, you would have to go without income for weeks. Or even a few months and emergency fund could then be used to cover all of your basic expenses, rent, groceries, gas, et cetera, until you find a new job and emergency fund can also be helpful if something unexpected happens, such as your car breaks down a trip to the or a roof.

Blowing off in a thunderstorm having some money set aside in an emergency fund gives you peace of mind that you're covered in the event of an emergency. You'll be able to handle whatever life throws at you without going into debt or otherwise jeopardizing your financial future. So how much should you have an emergency fund?

It's typically recommended that you have about 6 months of living expenses in emergency fund. This is a good rule of thumb because it's scales. With each individual situation, basically, if you have higher monthly expenses, it would be wise to have more money in your emergency fund. This is automatically reflected by multiplying your monthly spending by six months So look at your monthly budget to determine how much you spend every month.

So my budget states that I spend about fifteen thousand dollars a month if I wanted to have six months of an emergency fund it would have to be 90 000 in an emergency fund. And if I say I was like starting fresh, I wanted to fund my emergency fund, but I'm like, okay, I wanna put $500 towards funding my emergency fund every month.

It would take me a good 15 years to get $90,000 in an emergency fund. This may or may not be realistic for some people to just have 90, 000 dollars sitting around. And by the way, for your emergency fund, I recommend having your emergency fund in a high yield savings account, because it's a big chunk of money, liquid assets that you want to have available to you.

90, 000 dollars at my spending of 15, 000 dollars a month is how much I would need for an emergency fund. I don't realistically think I'll ever have that much money in an emergency fund. Personally, because I just think it's too much money that is sitting around not gaining interest. A little Anxious to have that much money even half of that. So if I did three months of an emerge three, 3 months of an emergency fund, like 45, 000 dollars. That's a little bit better in savings. I think that I would be a little bit more comfortable with that. But in all honesty for me, having about a month's worth of money to cover all of my expenses is enough for me. So if I have 15, 000 dollars, say.

In a savings account, I'll be cool. And let me tell you the reason why is because I just feel like the opportunity cost of not having that money invested is just too high for me versus an emergency, which I don't think like the worst case scenario I could think of is that I'll be out of work like for an extended period of time.

But there are so many different ways that I feel like I can make up that money so without having to have such a big emergency fund. So here are some things that you can do in addition to an emergency fund. If you don't feel comfortable having that amount of money sitting in a bank like me.

So 1 thing is and this is something I don't necessarily recommend, but there's an option if you have a Roth IRA and you've been contributing to it regularly, if you really need some money in a bind, you can take the principal balance out of that without penalty or without taxes and penalty, and you can use that if you're out of work for a while a lot of people are getting laid off, you right now, or you have a disability, which is usually a contributing factor to you being out of work.

1 of the things that you should invest in number 1 is disability insurance. But if you're like, truly laid off you still have some months of severance. Hopefully that you can use if not. I really feel like getting any kind of job in the meantime, in between time to cover your bills as an option.

Also, I'm trying to think of specific examples for what you do if you're laid off, because I know that's a situation that a lot of people are in. so I just found this great article from nerd wallet that says laid off. Take these steps to get help. So what do you do? If you've been laid off of work, you can apply for unemployment benefits. You can contact your banks and lenders to try to put a hold or a stop on your payments or try to decrease your payments.

You can cut out your finances. Decrease your spending as much as possible tap into some community resources like food banks are visit 211. org. Be very strategic about your money you can explore different ways of borrowing money and you can examine your health care options.

So that can decrease some of your costs. So those are just some ways, but I really empathize with people who are laid off, especially unexpected. And I just saw something about the whole YouTube music department just got an unexpected layoff in line.

So things like that are happening pretty often. So emergency funds are great. The other thing you can do in lieu of having a big emergency fund is if you have investments that, are paying you dividends, and you usually reinvest those dividends, you can have some of those dividends.

Just go into a savings account so that you can actually use those dividends to spend. So those are some ways that, I think if you weren't comfortable having such a huge emergency fund, or you just weren't at the point where you have an emergency fund, these are some options. If you have for example, in my job, I have a 403B and a 457 that's deferred compensation.

If you are separated from your job, if you do have a 457, you can access those funds penalty free. You will have to pay taxes on it based off of what your income is that year.

It could be relatively. And it's just for the amount that you take out. So you want to take those out sparingly, depending on, the tax implications there, but you do have that money. So once you separate from your company, your 457 funds are yours.

And those are the things that kind of make me feel a little more comfortable with not having 45, 000 or 90, 000 sitting in a bank account, not working for me. Some other things you can do if you have a life insurance plan, you can borrow against your life insurance plan. So there's a multitude of things that you can do in emergencies.

But really, the best thing to do is try to get your expenses down as low as possible and evaluate your spending to possibly take for example, my 15, 000 dollars a month and spending down to 10 and then it decreased how much you really mean. But yeah, those are some options, but to recap, emergency fund should typically be 3 to 6 months of your expenses.

Put preferably in a high yield savings account. Some people like when you're paying off debt, Dave Ramsey said, you should only have a thousand dollars in an emergency fund. That's not enough, but I don't necessarily think if you're not comfortable having three to six months or like more like five figures in a savings account, there are some other ways that you can access funds and just know which things are available to you.

For example, when I went out on maternity leave I tapped into my disability insurance because my state disability and it replaced 90 of my income so I didn't even have to tap into Like my long term disability, even though I was out for 10 months. Just look at the options that you have.

If you ever find yourself in a position where you do have an actual emergency, it does suck, but I understand that most americans aren't prepared for a 500 Emergency, so a step any step above that is a step in the right direction It's just something to really think about and start putting plans in place for a job loss an illness Something or an emergency, like a car breakdown, having to retile your roof.

These are some things that, you know. If they happen, unfortunately, you want to have a plan around an emergency. A good emergency fund is a great plan to have again. If you want to check out the calculator, my emergency fund calculator, you can go to financially intentional dot com and then click on the tab that says tools and you'll see a drop down of a whole bunch of calculators that you can go around and.

Go in and play with let me know what other things you guys have come up to fund things in emergencies, what things you've experienced as far as like layoffs with severances and how that works. And then how much do you actually think you need to have for an emergency? All right. Talk to you guys on Thursday.

Hey there I’m Naseema

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