Do You Have Enough In Your Emergency Fund?
I am sure most of you know someone who has been negatively impacted by the coronavirus outbreak, either medically or financially. Many people have lost their jobs, or have had their hours cut back significantly during these trying times. It is so important to make sure that you have an emergency fund set up, and that it is properly funded, to get you through times like this.
I usually recommend that my clients have three to six months of funds invested in a higher yielding savings account to get them through unexpected expenses that may occur due to:
- Unforseen medical expenses
- Home appliance repair or replacement
- Major auto repairs
The emergency account should serve as a buffer so that you do not have to rely on credit cards, selling stock at lower prices, or high interest loans. This should only be used for true emergencies, and not for vacations or other discretionary expenses.
Before I even begin a financial plan, the first thing I do is to make sure my clients have an emergency fund established. Once this is established, it is important to properly diversity your portfolio so that you can withstand an economic downturn. Sometimes clients resist having to keep money in cash, or short term investments that may not yield as great a return as some of the more volatile investments, but being in the appropriate asset allocation can allow your portfolio to work for you regardless of the market. It also allows you to be able to avoid selling equities when the market is so volatile. If you are properly invested, you are able to weather a downturn such as we are currently experiencing.
I tell my clients that as long as you don't need the money in the next couple of years, it is best to stay the course and stay invested in your portfolio. For clients approaching, or in retirement, they need to have enough assets in cash and short term investments so that they do not have to worry about selling when the stock market has declined.
I think it is a great time to meet with a financial adviser to review your current savings and asset allocation, to make sure that you can withstand this market volatility. We are all going through an unprecedented time, but this too shall pass.
If you would like to schedule a call to discuss your planning needs, please contact me.
About the Author
Patti Hughes is a Chicago Fee-Only Financial Planner. Lake Life Wealth Advisory Group provides comprehensive and objective financial planning, retirement planning, and investment management to help clients organize, grow and protect their assets through life’s transitions. She is a fiduciary, and does not sell products or earn commissions, so she truly acts in the best interests of her clients.