Personal Emergency Reserve Savings

 The other day during my morning drive to work, I heard a rather startling statistic on our local news radio program – 40% of Michigan residents have NO (that means $0) savings!  Michigan is number 26 of the 50 states in savings rankings, which means that there are 24 states that are worse.  OUCH!

There is no doubt that with the market downturn of 2008 and the slow economic recovery in the last several years, many families had no choice but to dig into savings to survive. But that’s exactly one of the reasons that emergency reserve savings are so important!  Now that more people are back to work and are back to a more normal cash flow, it’s time to get back to business and build the reserves again.

How much emergency savings do you really need?   

Experts don’t always agree on an exact number, but many financial planners recommend having at least three to six months living expenses in an emergency fund, invested in cash or cash alternative investments.  For some, it is easier to pick a specific dollar amount as an achievable goal (say $10,000 or $20,000).  Clearly, the higher your monthly expenditures, the higher your reserve savings should be, especially if the majority of those monthly expenditures are non-discretionary.

Whether you are one of Michigan’s 40% with no savings, or are just someone who doesn’t have enough set aside for an emergency, start “reserving” some cash today. 

To get started, here are a few tips to consider:

  • Save aggressively.  Use payroll deduction from your paycheck, if possible, or budget in savings (i.e. have an amount automatically moved from your checking to a savings or investment account on a monthly or bi-monthly basis).
  • Reduce your discretionary spending.  Remind yourself that this is likely a temporary adjustment until your reserve savings reach an adequate level.
  • Consider other resources until reserves are built.  Do you have cash value life insurance that you can borrow from if you have an urgent need?  Do you have other investments generating income that can be pulled off to build reserves? 

Hopefully, you’ll never have to tap into the funds you are committing to setting aside. But it is impossible to know what is around the next bend and it is always best to be prepared. The time to start (or continue) building your emergency reserves is now!  Consult a Certified Financial Planner™ for these and other ways to help save for your financial future.

Sandra Adams, CFP® is a Financial Planner at Center for Financial Planning, Inc. Sandy specializes in Elder Care Financial Planning and is a frequent speaker on related topics. In 2012 and 2013, Sandy was named to the Five Star Wealth Managers list in Detroit Hour magazine. In addition to her frequent contributions to Money Centered, she is regularly quoted in national media publications such as The Wall Street Journal, Research Magazine and Journal of Financial Planning.

Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.  Any information is not a complete summary or statement of all available data necessary for making an investment decision.  Prior to making an investment decision, please consult with your financial advisor about your individual situation.  Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.