Today’s article is a part of the Forward Thinking Education Series presented by Legacy Bank, the Latino Chamber of Commerce and the Pueblo Chieftain. Webinars further discussing this and other financial topics can be found on the Latino Chamber of Commerce Facebook page at: https://m.facebook.com/PuebloLCC/
An emergency is defined as an unplanned situation presenting immediate risk to health, life, property, or environment. Certainly the COVID-19 pandemic fits that definition but many other emergencies can befall any of us. Illnesses or injuries, unexpected home or vehicle repairs, job loss and even a relatives financial problems all fit into this category
Having money available to help deal with these occurrences in the form of an emergency fund is an essential part of any personal or family financial plan. But the reality is that the pandemic has drained many Americans’ emergency savings and other people did not have one to begin with. A Bankrate survey this summer revealed that 21 percent of Americans had no emergency savings whatsoever and 35 percent said they have less emergency savings now than before the pandemic.
For people who are employed or have other sources of income, a good rule of thumb is to build up an emergency fund sufficient to cover your basic living expenses for at least three months and preferably six months. “If you are one of those people without any or only a limited emergency fund it’s important to address that situation,” notes Amy Good, University Park Branch Manager of Legacy Bank.
To determine how large an emergency fund you might need, go through your check register and credit/debit card statements and cash receipts for the past year to identify monthly expenditures that are absolutely essential and must be covered by your emergency fund if an emergency occurs. This list should include rent or mortgage payments, insurance premiums, auto fuel and maintenance, utilities, non-emergency health and dental care and food. Multiply by six to find your emergency fund target. Once you have reached this goal you can continue to contribute to your emergency fund and perhaps redirect a portion of your income into other expense categories or even another savings account. “But remember,” notes Good “emergencies don’t occur on a schedule. While you are on your way to saving enough for six months, your car, home or appliances may require you to spend some of that money and you must then resume your savings effort.”
“Next,” says Good, “calculate how much income you or your family can be expected to generate during the next 12 months including salaries, commissions, tax refunds, stimulus money and any side business proceeds. That’s the source of your savings. But don’t panic. Set small savings goals at first and gradually add to that amount regularly over time.”
Often a situation will require that you have quick access to your emergency fund to pay the doctor, mechanic or repairman promptly. But that does not mean you should keep cash under your mattress or hidden in a coffee can. Rather you can visit bank websites to view the options they offer for savings accounts, checking accounts, money market funds and certificates of deposit. Many banks will have a variety of options in each category with minimum deposit requirements, interest rates, check writing and mobile banking features. As your emergency fund grows, you may move the money from one type of account to another.
Amy Good is the University Park branch president for Legacy Bank. Good has extensive experience ranging from government to the public sector. An avid Pueblo County volunteer, she has spent 16 years of her career in finance advocating for local businesses and residents.
Article Published on the Pueblo Chieftain here.