Hey, this is Alex with AFS 401(k)! Its
episode number 55 of Money Hacks and we’re talking about emergency savings.
This is such an important foundational piece to our financial picture and
financial success and there’s a recent article from The New York Times that said even in this strong economy most households most families don’t have
money set aside for an emergency and over the last few months this has
probably been the number one area of advice that I’ve been sharing in
one-on-one financial coaching sessions with employees and investors about
putting away and setting up emergency savings so that you have enough for
today while also thinking about your financial goals for tomorrow and in a
long-term future. Now, there’s just a ton of data, there’s been a ton of articles on
this. I think USA Today put out a piece and AARP put out a piece that you know
most households in this country don’t have $500 for an unexpected expense so
you can find a lot of statistics around the challenges that we all face as
consumers and investors on not having enough set aside for emergencies.
In fact, we’ve built out a chart, a Hierarchy of Financial Needs and our
number one piece to that is getting $1,000 set aside for emergency
savings. Even before putting money into your 401(k) or 403(b) it might sound
counterintuitive as the retirement consultants but we know that without
that money set aside for an unexpected expense when that occurs then you’re
gonna be pulling money out of your 401(k) and taking fees and penalties or perhaps
not able to continue participating in the retiring plan. So how do you start
accumulating an emergency savings account or what’s the best strategy?
I’ll give you 3 pieces of advice number one start today and start small
even if it’s $20, $40, or $60 out of every paycheck set up a separate savings
account and begin putting money into that account every pay period. Start small get
it going and from there build on that momentum. The second piece of advice- make it automatic. The New York Times article cited that 82% of American workers have their paycheck direct deposited in their
checking account and most employers allow this, in fact, many employees allow
you to direct deposit into multiple accounts so make it automatic. If you’re
able to do that you’ll have most of your paycheck going into your checking
account at your financial institution, your credit union, or your bank and then
whatever you’re setting aside for emergencies whether it is $20, $40, or $100
have it go directly from your paycheck into that separate savings account. We
have some other articles and videos on where to put your emergency savings
money and so you should check those out on MoneyNav but we’re generally
recommending a separate earmarked savings account or a high-yield money
market fund but the the number two priority is just making it automatic and
then number three set a goal. So our initial recommendation is to get a $1,000 in emergency savings as your number one financial priority after that
there are probably some other steps that are going to be important for you but
ultimately pretty quickly in your financial goals building up to three to
six months worth of expenses for a rainy day so if you have questions please feel
free to check out MoneynNav, or reach out to us. Check out the article from the
New York Times I hope this helps and we’ll see you next time!