Your Emergency Fund How Much is Enough and Coping with the Shutdown

Your Emergency Fund How Much is Enough and Coping with the Shutdown

by rwilczek on Jan 25, 2019

Emergency Fund, Shutdown, Government Shutdown

Understanding the financial crisis of 2008 wiped out a lot of emergency funds, home equity and retirement plans we have seen a better employment picture recently and healthier markets until late 4th quarter 2018. 

 

Also understanding if you are a government employee not being paid or contractor dependent on business from the shuttered government, you are using your emergency funds now. 

 

The rest of us who are gainfully employed or healthy in retirement should be shoring up funds for the long awaited recession or the next economic downturn.  Not sure how long before they occur, but recommend you set aside funds to pay 6-12 months’ expenses for your future.  Some money market funds are paying close to 2% and liquid as you need them.  Other FDIC insured money market funds are only paying about 0.11% on low deposit amounts. 

 

Regardless of low interest rates, you will be glad you saved when an emergency, layoff, health problem arises and you need funds. 

Thanks and be well. Rita

 

Your Emergency Fund: How Much is Enough?
An emergency fund may help alleviate the stress associated with a financial crisis.

 

Provided by Rita Wilczek

   

Have you ever had one of those months? The water heater stops heating, the dishwasher stops washing, and your family ends up on a first-name basis with the nurse at urgent care. Then, as you’re driving to work, giving yourself your best, “You can make it!” pep talk, you see smoke seeping out from under your hood.

 

Bad things happen to the best of us, and instead of conveniently spacing themselves out, they almost always come in waves. The important thing is to have a financial life preserver, in the form of an emergency cash fund, at the ready.

 

Although many people agree that an emergency fund is an important resource, they’re not sure how much to save or where to keep the money. Others wonder how they can find any extra cash to sock away. One recent survey found that 29% of Americans lack any emergency savings whatsoever.1


How Much Money? When starting an emergency fund, you’ll want to set a target amount. But how much is enough? Unfortunately, there is no “one-size-fits-all” answer. The ideal amount for your emergency fund may depend on your financial situation and lifestyle. For example, if you own your home or provide for a number of dependents, you may be more likely to face financial emergencies. And if the crisis you face is a job loss or injury that affects your income, you may need to depend on your emergency fund for an extended period of time.

 

Coming Up with Cash. If saving several months of income seems an unreasonable goal, don’t despair. Start with a more modest target, such as saving $1,000. Build your savings at regular intervals, a bit at a time. It may help to treat the transaction like a bill you pay each month. Consider setting up an automatic monthly transfer to make self-discipline a matter of course. You may want to consider paying off any credit card debt before you begin saving.

 

Once you see your savings begin to build, you may be tempted to use the account for something other than an emergency. Try to budget and prepare separately for bigger expenses you know are coming. Keep your emergency money separate from your checking account so that it’s harder to dip into.

 

Where Do I Put It? An emergency fund should be easily accessible, which is why many people choose traditional bank savings accounts. Savings accounts typically offer modest rates of return. Certificates of Deposit may provide slightly higher returns than savings accounts, but your money will be locked away until the CD matures, which could be several months to several years.

 

The Federal Deposit Insurance Corporation insures bank accounts and certificates of deposit (CDs) up to $250,000 per depositor, per institution in principal and interest. CDs are time deposits offered by banks, thrift institutions, and credit unions. CDs offer a slightly higher return than a traditional bank savings account, but they also may require a higher amount of deposit. If you sell before the CD reaches maturity, you may be subject to penalties.2

 

Some individuals turn to money market accounts for their emergency savings. Money market funds are considered low-risk securities, but they’re not backed by the federal government like CDs, so it is possible to lose money. Depending on your particular goals and the amount you have saved, some combination of lower-risk investments may be your best choice.2

 

Money held in money market funds is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Money market funds seek to preserve the value of your investment at $1.00 a share. However, it is possible to lose money by investing in a money market fund. Money market mutual funds are sold by prospectus.2

 

Please consider the charges, risks, expenses, and investment objectives carefully before investing. A prospectus containing this and other information about the investment company can be obtained from your financial professional. Read it carefully before you invest or send money.

 

The only thing you can know about unexpected expenses is that they’re coming – for everyone. But having an emergency fund may help alleviate the stress and worry associated with a financial crisis. If your emergency savings are not where they should be, consider taking steps today to create a cushion for the future.

                 

Rita Wilczek may be reached at (952) 542-8911 or rwilczek@hirep.net

www.ritawilczek.com

  

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 
Citations.

1 - cnbc.com/2018/07/02/about-55-million-americans-have-no-emergency-savings.html [7/6/18]
2 - investor.vanguard.com/investing/cash-investments [12/13/18]

 

Coping With the Shutdown

A look at who is affected, and the potential economic impact.

 

Provided by Rita Wilczek

   

Right now, many households across the country are contending with the financial pressures resulting from the partial federal government shutdown. About 800,000 federal workers have been furloughed, and about 4 million government contractors are now working for free. Besides the interruption of key services, the closures risk causing a degree of disruption in the economy.1  

  

Nine federal departments have scaled back operations. The list: Agriculture, Commerce, Justice, Homeland Security, Housing and Urban Development, Interior, State, Transportation, and Treasury. (About 240,000 workers have been furloughed by Homeland Security alone.) Even so, many essential federal government services are still being provided. The Social Security Administration is continuing to send out retiree benefits, and the Postal Service is still delivering mail.2,3

     

The longer the shutdown lasts, the deeper its possible economic impact. Kevin Hassett, who chairs the Council of Economic Advisers, estimates that each week of the shutdown hurts quarterly GDP by 0.13%. If Hassett is correct, then first-quarter growth may already be about 0.5% short of federal government projections. Some analysts think the economy could contract in Q1 if the shutdown drags on through the start of spring.4

 

What options do furloughed workers have? The gig economy beckons, with short-term jobs that can be left behind with little notice if the shutdown ends. It may come down to driving for rideshare or meal delivery companies or working as a barista or waiter – something with a flexible or alternative schedule. Some can find part-time accounting, editing, or health and safety work. (The New York Times recently noted a turn-of-the-year spike in online job searches by workers at federal agencies.)4

 

Of course, some furloughed federal workers are barred from accepting interim employment. Those not classified as “excepted” or “exempt” cannot even volunteer while furloughed.3

  

On January 16, President Trump signed a bill into law to reimburse federal workers for lost wages when the shutdown ends. Furloughed federal employees who are receiving state unemployment benefits will have to return those benefits after they collect their back pay.3,5

  

As the gridlock continues, these employees and contractors are showing great patience and resourcefulness. Hopefully, they will not have to cope with financial anxieties and hardships much longer.

               

Rita Wilczek may be reached at (952) 542-8911 or rwilczek@hirep.net

www.ritawilczek.com

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

    

Citations.

1 - cnbc.com/2019/01/10/amid-shutdown-thousands-of-federal-workers-file-for-unemployment-.html [1/10/19]

2 - tinyurl.com/ycmnaqfl [1/1/19]

3 - oregonlive.com/business/2018/12/government-shutdown-2018-will-i-get-mail-what-about-social-security-benefits.html [12/26/18]

4 - nytimes.com/2019/01/15/us/politics/government-shutdown-economy.html [1/15/19]

5 - cnn.com/2019/01/16/politics/trump-signs-backpay-bill-government-shutdown/index.html [1/16/19]

 

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