By Michael Foster, CFA, CFP®
FUN FACT: My first concert was Foreigner at Wild Adventures theme park when I was a teenager, and it ruled.
Why on earth was a kid born in the early 90’s excited to see a band that peaked 25+ years earlier perform at a half theme park/half zoo? Well, I liked (and still like) classic rock music, roller coasters and animals are tough to beat as a combo, and it was a great way to spend time with my dad and brother. I’ve seen my share of concerts, many of them memorable, but I remember this one as well as any. They played all the hits!
Their best song in my opinion is “Urgent”. It’s got catchy guitars, a funky bass line, a classic 80’s synth, but most importantly, a killer saxophone solo. If you haven’t heard it, do yourself a favor, and enjoy.
Now you’re probably wondering why I’m telling you this. Isn’t this a blog about financial planning and investments?
Well, as you hopefully just heard, the song builds up to the end with the lead singer shouting “urgent, urgent, emergency!” over and over. Sorry in advance for the very loose and corny connection I’m about to make, but this got me thinking about emergency funds and their important role in taking care of surprise expenses. Be honest, if I started with that sentence, you probably would’ve closed out of the article.
Emergency funds are something most people know they should have but few people optimize. No one wants to be cash strapped if unexpected medical bills, a job loss, or home repair comes up, but that’s the case far too often. A recent survey from Bankrate found that only 43% of Americans would pay for an unexpected $1,000 expense from their savings. Having a buildup of cash or highly liquid reserves can avoid the forced sale of investment assets or taking on debt to cover short-term expenses.
We often recommend clients have anywhere from 3-6 months of expenses in their emergency fund as a baseline. Some people prefer to keep more than this based on their personal risk tolerance or situation that may cause them to tap into their funds more often. It’s important to understand what amount in emergency savings will help you sleep better at night.
When thinking about where to set up an emergency fund, we often suggest direct depositing into a high-yield savings account. There are a number of FDIC-insured banks that offer these types of accounts. These accounts are highly liquid and allow funds to generate some return before their use. As of this writing, my Ally savings account I use for my emergency fund and saving towards other short-term goals is paying an annual percentage yield of 4.25% while my Bank of America savings that I primarily use to pay monthly bills is paying 0.01% annual percentage yield. It can be prudent to see what rate you’re getting on savings and shop around for something better.
Having a strong emergency fund can provide not only the necessary funds but the peace of mind that you can handle the unexpected curveballs life throws at you. Next time something “urgent” comes up, breathe easy and know that you’ll be ready to take it on.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. The market and economic data are historical and are no guarantee of future results. All indices are unmanaged and may not be invested into directly. The information in this report has been prepared from data believed to be reliable, but no representation is being made as to its accuracy and completeness.Nothing in this material should be construed as investment advice offered by Dolan Capital Advisors, Inc. This market commentary is for informational purposes only and is not meant to constitute a recommendation of any particular investment, security, portfolio of securities, transaction, or investment strategy. No chart, graph, or other figure provided should be used to determine which securities to buy, sell or hold. No representation is made concerning the appropriateness of any particular investment, security, portfolio of securities, transaction, or investment strategy. You should speak with your own financial professional before making any investment decisions. Past performance is not indicative of future results. Dolan Capital Advisors, Inc. does not guarantee any specific outcome or profit. These disclosures cannot and do not list every conceivable factor that may affect the results of any investment or investment strategy. Risks will arise, and an investor must be willing and able to accept those risks, including the loss of principal. Certain statements contained herein are statements of future expectations and other forward-looking statements that are based on opinions and assumptions that involve known and unknown risks and uncertainties that would cause actual results, performance, or events to differ materially from those expressed or implied in such statements. Ben Dolan and Michael Foster are investment advisor representatives of Dolan Capital Advisors a North Carolina state-registered investment adviser. Investment advice offered through Dolan Capital Advisors, Inc.