Connect with us

Digm Piece (Op-Ed)

Should You Have an Emergency Fund?

Published

on

Photo credit iStock by Getty Images

You may have heard that you should save at least six months of your income saved in your savings account to cover any future financial setbacks. But it’s easy to wonder why you can’t just use credit or help from family when extra cash is needed for an emergency – especially when saving for an emergency fund seems overwhelming. But what does that really mean, and can’t you just use credit or family when you need the extra cash for an emergency?

Here are some common excuses that people tell themselves about why they don’t need to save an emergency fund:

  • I can barely pay my bills, how on earth could I save on top of that?
  • I can ask my family for money if I really need it.
  • There are options to help me in a bind, like a credit card or payday loan.
  • I’m too young to need to save that much money right now, and can do it when I’m older and making more money.

Let’s say you decide to go one of these three routes instead of saving your own money…

  • If you can barely pay bills now, you will have a hard time catching up with your debt after the emergency is over.
  • If you borrow money from your family or friends, you will put a strain on that relationship, and they may become resentful of you if you don’t pay them back quickly.
  • If you use credit or loans irresponsibly, you may ruin your credit or fall into a debt spiral.
  • If you don’t start saving when you’re young, you’ll miss out on the benefits of compounding your cash and won’t have the luxury of having planned ahead.

So what is an emergency fund anyways?

The Simple Dollar breaks down what an emergency fund should be with their definition:

“An emergency fund is cash that you’ve saved up for the sole purpose of helping you maintain your normal life through the emergencies that life hands you.”

What are some emergencies people prepare themselves for by making an emergency fund? Check all that could apply to you.

  • You get a new job and can now afford to pay your bills and debt while you await your new paycheck cycle to start by transferring some of your emergency savings into your checking account.
  • Your car dies and you must get a new one, but you have money to put down a large down payment, getting you a new car and keeping your monthly payment at an affordable rate.
  • Your new car’s check engine light goes on, and now needs extensive work. You need your car to get to work, and have saved enough to fix it quickly, while using your insurance to get a rental car during the downtime.
  • You twist your ankle from playing basketball and can afford to cover the bills while you’re out of work for weeks.
  • You buy your first home, and during the winter your furnace breaks, costing you over $6,000, which you’re able to afford to keep the heat on for you and your family.
  • You finally get a meeting with the board to pitch your big idea and can afford to go out and buy yourself a nice suit.

How many did you check? Can you see yourself in any of those situations in the future, or did you come up with your own? And I know your next question… Where do I put my money to receive the biggest bang for my buck?

Bankrate.com recently published a comprehensive comparison guide by surveying 4,800 banks and credit unions across the country to give you the ability to make the best decision on where to put your money. This comparison will help you maximize the yield from your deposits. Here’s a link to that guide: https://www.bankrate.com/banking/savings/rates/

 

Ash Exantus aka Ash Cash is one of the nation’s top personal finance experts. Dubbed as the Financial Motivator, he uses a culturally responsive approach in teaching financial literacy. He is the Head of Financial Education at BankMobile and Editor-in-Chief at Paradigm Money. The views and opinions expressed are those of Ash Cash and not the views of BankMobile and/or its affiliates.

Continue Reading
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Digm Piece (Op-Ed)

5 Hidden Risks in Retirement That Could Affect Your Financial Security

Published

on

Being well-prepared for retirement is wonderful, but there is no fail-safe plan. Things can unravel due to many inherent post-retirement risks. Understanding those risks that lie ahead and how they can harm financial security is key to making critical adjustments in a retirement plan. Sometimes without those changes, the impact of unfavorable and unpredictable events can be far more severe.

“Once you have a retirement plan in place, it’s not set in stone,” says Clayton Alexander (www.retireteton.com), an investment adviser and founder of Teton Wealth Group. “Things change. You may add or lose family members, your retirement goals may change, the economic environment may create new considerations, and financial innovations may present new strategies. Once per year is a minimum in terms of making sure your retirement plans (and beneficiaries) are constantly up-to-date.”

Alexander says retirees and those making retirement plans should be aware of these five risks:  

  • Longevity. Running out of money before they die is one of the primary concerns of most retirees. This worry is heightened by the fact that the average life expectancy has increased. “A pension or an annuity can lessen the risk, but carefully investigate any company where you’d place an annuity and be cautious of fees and interest rates,” Alexander says. “It’s best to tailor your plan to run to life expectancy plus five years.”
  • Loss of income. “Make sure both you and your spouse are protected from the unexpected,” Alexander says. “Consider the financial impact of the loss of one spouse. Remember that your surviving spouse will only get the highest of your two Social Security checks. A spouse’s death can bring additional financial burdens, including lingering medical bills and debts. Life insurance and estate planning are important vehicles to protect survivors.”
  • Health care costs. Longer life expectancy could lead to high costs in a long-term care facility. “It’s estimated that approximately 50% of people over 65 will need long-term care,” Alexander says. “Do not overspend on policies that may be subject to drastic premium increases. And surprising to some, Medicare is not free — your premiums for coverage are usually deducted from your Social Security check. Medicare doesn’t cover dental, hearing or vision, is subject to deductibles, and doesn’t cover long-term care. Long-term care insurance is advisable.”
  • Negative return risk. “A 50% gain does not allow a portfolio to recover from a 50% loss,” Alexander says. “In fact, a 100% gain is required to restore a 50% loss. The ‘buy and hold’ strategy that works when you are young — where you wait for the markets to come back up after a downturn — does not apply in retirement as we saw in 2008, when many people’s retirements were wiped out. Common stocks have substantially out-performed other investments over time and thus are usually recommended for retirees as part of a balanced asset allocation strategy, but the rate of return you earn can be significantly lower than the long-term trends.”
  • Inflation risk. “You should plan on prices for food, goods and services getting higher during retirement, reducing your buying power incrementally as you are living on a fixed income,” Alexander says. “Your retirement plan has to factor that in. Ways retirees can curb the effects of inflation include annuity products with a cost-of-living adjustment feature and investing in equities, a home, and other assets.”

“Understanding what the potential post-retirement risks are and considering them in the retirement planning stage,” Alexander says, “can help to ensure that they are mitigated and properly managed.”  

About Clayton Alexander Clayton Alexander (www.retireteton.com) is an investment adviser and founder of Teton Wealth Group. A graduate of Dixie State University with a B.A. in administration, Alexander also worked at Northwestern Mutual and Goldman Sachs. He is licensed for life and health insurance in the state of Utah and has passed the Series 65 securities exam. Alexander focuses on building holistic retirement plans, and with the launch of Teton Wealth he developed the four-step Ascent Plan – a system to help clients gain clarity and perspective on creating a financial plan for safe, secure and tax-efficient retirement income and estate transition.  

Continue Reading

Digm Piece (Op-Ed)

Are Americans Undervaluing Paid Time off + Quick Trip Tips

Published

on

It’s August, which for many Europeans means taking almost the entire month off. So why is it difficult for Americans to take even the little vacation time they receive? A recent piece in The Economist states workers in the U.S. are doing it all wrong by going on short holidays, which can add even more stress or taking none. Instead, it’s essential for employees to recharge their batteries. It’s also beneficial for companies to have a consistent holiday month during which junior employees can head to the beach, and managers can take stock of things, says the report.

While many Americans may not receive paid time off, especially those that only work part-time, even those who receive it generally don’t take all of it. What we don’t realize is that not taking a vacation is like giving money back to your employer, especially with companies that have a use it or lose it policy. Which should encourage employees to use their time but unfortunately it does not. According to recent polls conducted by Bankrate, nearly 2600 US adults say they plan to take a quarter of their vacation days while 4% are not planning to take any vacation time at all.

Time off is a valuable perk, to the tune of millions of dollars! Just to bring the point home in 2017 Americans gave up 212 million days off that amounts to $62.2 billion in lost benefits! So, take your vacations and follow the tips below to not break the bank while taking time off:

  1. Take a Staycation – Stay local and vacation somewhere that is less than a day drive away, this helps save gas, mileage, and spending on lodging. Look for local attractions, vineyards, interesting museums and landmarks or even travel to your closest big city and be a tourist for a day. You would be amazed at how much you can discover and learn by staying local and all on the cheap! It’s a bonus if you have friends in the town your visiting they can serve as a tour guide and let you stay over for free if they have the room.
  2. Book Flights Off-Season – July 4th, Memorial Day and Labor Day seem like a great time to go on vacation; unfortunately, everyone is planning to take time off during those busy weekends, and ticket prices are through the roof because of it. Book flights after major holidays and during the week you will generally find that they are cheaper than weekend flights.
  3. Take a Road Trip – Road trips are fun and cheaper than taking a plane, especially if you must rent a car when you get to your destination anyway. Plan cool stops along the way and finds interesting places to eat that way you can make the journey part of the vacation.
  4. Plan to Eat In – Food adds up on vacation so pack food and making one or two meals in your hotel can keep you under budget.
Continue Reading

Digm Piece (Op-Ed)

Top Ten Freshman Money Myths

Published

on

Photo credit iStock by Getty Images

Starting college is one of the most important and exciting times of your life. Now that you’re all “checked-in,” enjoy your college experience without worrying about where your next meal will come from by chasing away these common freshman money myths. (more…)

Continue Reading

Trending

Copyright © 2019 PARADIGM.MONEY, All Rights Reserved. PARADIGM.MONEY is owned/operated by BankMobile, a Division of Customers Bank. The opinions/Views expressed on PARADIGM.MONEY are not considered opinions/Views of BankMobile, a Division of Customers Bank.