a large blue swimming in the water

Media / Blog

An Emergency Fund Is Essential Business


2021 Financial Reset

January 10, 2021

An Emergency Fund Is Essential Business

There are a lot of lessons we learned in 2020, among others, that we can reinvent ourselves, you can never have enough toilet paper, and you should always tell those you care about that you care about them, every day. But what did we learn about our preparedness for a financial emergency? An emergency fund is essential.

Emergency funds create a financial buffer so you do not have to rely on credit cards or high-interest loans. It can be especially important to have an emergency fund if you have debt, because it can help you avoid borrowing more. But how much should you save?

If starting small, try to set aside at least $500, but work your way up to half a year's worth of expenses. The truth is the right amount for you depends on your financial circumstances, but a good rule of thumb is to have enough to cover three to six months' worth of living expenses. If you do lose your job, you could use the money to pay for necessities while you find a new one, or the funds could supplement your unemployment benefits. Saving this amount might seem daunting but no matter how much you determine you need, just start saving.

But where should you stash your funds? A savings account with a high interest rate and easy access is a good option because an emergency can strike at any time, so having quick access is crucial. Keep this account separate from the bank account you use daily to avoid dipping into your reserves.

What are some easy ways to build the emergency fund?

Set a monthly savings goal.

This will get you into the habit of saving regularly and will make the task less daunting. One way to do this is by automatically transferring funds to your savings account each time you get paid. If your employer offers direct deposit, there is a good chance they can divide your paycheck between multiple checking and savings accounts so that your monthly savings goal is taken care of without touching your checking account.

Keep the change.

Use mobile technology to automatically save each time you make a purchase. There are savings-focused apps that link with checking or other spending accounts to round up the purchase amounts on your transactions. The extra amount is automatically transferred to a savings account. If you usually spend cash, you can take your spare change, or maybe $1 and $5 bills after breaking a $20 and drop some in a jar at home. When the jar fills up take it to the bank and deposit the cash.

Save your tax refund.

Once a year - and only if you expect a refund - you can bank the return. Saving it can be an easy way to boost your emergency stash. When you file your taxes, consider having your refund deposited directly into your emergency account. You can also adjust your W-4 tax form so that you have less money withheld. Then direct the extra cash into your emergency fund.

Assess and adjust contributions.

Check in after a few months to see how much you are saving and adjust as needed. On the other hand, if you have saved up enough to cover six months of expenses and have extra cash, you might consider investing the additional funds instead.

We learned in 2020 that everyone on the planet can be affected by one turn of events. Having something in financial reserve can mean the difference between weathering a short-term financial storm or perhaps going deeper into debt. To analyze your particular situation and determine how much you should save for the unexpected, contact your Private CFO®.


Useful Tips to Keep in Mind During Mergers or Acquisitions

About the author

a man wearing a suit and tie smiling at the camera

Micah Keel

Managing Director, Sarasota

Micah Keel is the managing director of oXYGen Financial in Sarasota, FL. Micah is an author, market analyst, and independent financial advisor with 20 years of experience in the financial services industry. He was honored with the Five Star Wealth Manager Award in 2014, 2015, 2016, 2017, 2018, 2019.

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. oXYGen Financial is not affiliated with Kestra IS or Kestra AS. Kestra IS and Kestra AS do not provide tax or legal advice. Investor Disclosures: https://bit.ly/KF-Disclosures

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation.

Background and qualification information is available at FINRA's BrokerCheck website.

Sign Up

Sign up for our exclusive Sunday Paper with a weekly market commentary, insightful personal finance blogs, and life changing education guides.

Email sign up

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. oXYGen Financial is not affiliated with Kestra IS or Kestra AS. Kestra IS and Kestra AS do not provide tax or legal advice. https://Bit.ly/KF-Disclosures

This site is published for residents of the United States only. Registered Representatives of Kestra IS and Investment Advisor Representatives of Kestra AS may only conduct business with residents of the states and jurisdictions in which they are properly registered. Therefore, a response to a request for information may be delayed. Not all products and services referenced on this site are available in every state and through every representative or advisor listed. For additional information, please contact Kestra IS Compliance Department at 844-553-7872.

PLEASE NOTE: The information being provided is strictly as a courtesy. When you link to any of the web sites provided here, you are leaving this web site. Kestra IS and Kestra AS makes no representation as to the completeness or accuracy of information provided at these web sites. Nor is Kestra IS and Kestra AS liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technologies, web sites, information and programs made available through this web site. When you access one of these web sites, you are leaving our web site and assume total responsibility and risk for your use of the web sites you are linking to.