Setting aside a few months of cash as an emergency savings account can be a critical foundation to a family's financial plan. There are many scenarios that could cause a family to have to dip into their rainy day funds. Having money already set aside can protect you from having to use retirement funds, taking on debt, or derailing your other long-term investments. Don’t fall into the trap of failing to plan because you don’t think it could happen to you.
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Job Loss or Job Change
Losing a job or experiencing a reduction in income can happen suddenly and unexpectedly. It is always a good idea to have a safety net in the form of emergency savings to fall back on during such times. This can help you cover essential living expenses until you can find a new job or get back on your feet. Not to mention that having a financial buffer can make an already stressful time easier to cope with.
Medical Emergencies (Human and Pet Variety)
Medical emergencies can be expensive, and in some cases, insurance may not cover the costs in full. Emergency savings can help you cover the deductibles and copays, as well as any other expenses that may arise due to an illness or injury. Our furry friends can also face unexpected medical costs. If you don't have pet insurance, a pet surgery can carry a hefty price tag. Having this fund can give you peace of mind that you can afford the care you or a family member needs without having to worry about the financial burden.
Family Changes (Divorce or Starting a Family)
Whether you are splitting assets with an ex-spouse or expanding your family, there are expenses that come along with family changes. Dividing a household after a divorce can disrupt your long-term saving plan or cause you to re-evaluate your budget as a single person. Or, if you are expanding your family by having kids or joining households together, that comes with a lot of extra expenses. Your emergency fund can not only help you with these additional expenses but can also give you some comfort knowing it is there just in case you need it.
Having emergency savings can help you cover the costs of these sudden change without having to take on debt. This can help you avoid high-interest credit card debt or loans, which can derail your financial plan. Many experts suggest 3 to 6 months worth of living expenses should be put aside into an emergency account. But your situation could vary so speak to one of our advisors about what may be best for you.
Overall, having an emergency fund is an important step in working towards financial stability and peace of mind. It may take time and discipline to build up this fund, but the benefits are worth it. Start small and stay consistent, and you will be on your way to financial preparedness.It is important to remember that an emergency fund is not meant to be used for everyday expenses or entertainment. It should be reserved for true emergencies.
Speak with and HMC Partners advisor for a second opinion on your finances and start planning for your future.