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How to Build an Emergency Fund

Building an emergency fund is a very important, but often overlooked cornerstone of a solid financial plan.  If you are willing to commit yourself to building an emergency fund, you will sleep better at night knowing that you are financially fit.  No matter how often people are told to build up an emergency fund for themselves, it's not always easy to take the necessary steps when you feel as though you're living from paycheck to paycheck. But unfortunately, these emergencies are often what land you in a cycle of borrowing that can ultimately damage a credit score. For an easier time, keep the following advice in mind before you start setting money aside. 

Understanding the Basics 

From a broken transmission to a serious illness, emergency funds are the cushion you need to handle major unplanned bills. Experts recommend sticking to basic savings accounts for these funds to keep the money readily accessible and not tied up in investments or property. A Certified Financial Planner™ professional, depending on your specific situation, may recommend you build a portfolio comprised of some short-term fixed income assets and cash.  Whatever account type you decide to choose, the important thing to remember is that you need penalty free access to your funds.  Your emergency funds need to be in a stable and very liquid asset class.  True emergencies are those that threaten either your health, livelihood, or assets. For example, you need a functional car to get work on time, or you may lose your home if you don't pay off a debt. 

Setting Money Aside 

If you haven't already built up an emergency fund, it may be time to start looking at areas where you can cut out unnecessary expenses. Even low-income households may waste up to 10% of their income every month, which could be put away with a little planning. While it's frustrating to be told to cut back when you already feel as though you're allocating every dollar to expenses, it is possible to do. For example, you may want to reduce dining out for dinner in order to stretch your food budget a little more.  You may want to use public transportation if your city has a reliable system in order to save money on gas and reduce mileage on your automobile. Experts recommend setting the money aside as soon as you receive your paycheck, preferably through an automatic transfer to a designated 'Emergency Fund Savings Account'.  When it comes to money, the old adage of 'Pay Yourself First' is one of the most important philosophies when it comes to saving.  

At Enduro Financial, I tell my clients that one of the key concepts in financial fitness is creating good habits, just like training for a endurance race.  Part of creating good habits is creating an achievable and repeatable process to your every day life.  I do this for many reasons, but the most important is that we want actionable every day goals that lead us to our ultimate goal.  When running a marathon, it is best to break up your overall time goal into "splits".  With this mindset, each mile of the marathon is run onto itself.  This Endurance Sports APPROACH may be used for saving for your emergency fund goal, college planning, or retirement planning.  Really, any of your life goals.  The main idea is to start each month with an achievable and repeatable goal, in order to execute the plan and create the process.  As you set aside money and reach your short-term goals, you will build confidence and you will then save a bit more each month, so you can reach your goal sooner. 

Establishing Goals 

It's up to each individual person to establish their financial goals, but it may help to talk to a Certified Financial Planner™ professional about what it really takes to have an emergency fund that you can count on and get a concrete dollar amount as a goal.  Although there are some general guidelines regarding emergency fund ranges, it is best to work with a Certified Financial Planner™ professional who can work with you to figure out a reasonable emergency fund goal specific to your situation.  They will also coach you through how to set money aside without compromising the rest of your financial obligations and long-term plans.  Prioritizing multiple financial goals can be a very difficult challenge, but one that a Certified Financial Planner™ professional would be able to coach you through.

The ultimate goal of an emergency fund should be to help you relax if there's an emergency in the future. Removing the element of uncertainty about how finances will be covered can make it much easier to breathe easy during unfortunate circumstances. 

If you don't have an Emergency Fund, building a budget which tracks your income, spending, and determines your net worth is a great place to start!  Utilize Enduro Financial's complimentary financial software here.

If you have questions regarding your specific circumstances, you may set up a complimentary 30 minute appointment here.


The content is developed from sources believed to be providing accurate information. The information in this material is not intended as investment, tax, or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

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