The markets were down slightly, rebounding after tensions regarding Greenland eased, and are still positive for the year. This short-term volatility should be a reminder that investing is, by definition, a long-term proposition. Buy stock in quality companies, and don’t let fear drive your decisions.
This weekend’s storm is a great reminder that we all need to be prepared for everything life can throw at us. That starts with solid finances, including an emergency fund. Having a cushion helps with things like this storm, where you might have needed to stock up on food and firewood, or purchase things like snow shovels and ice melt. For some people, not going into work on Sunday or Monday means no pay for two days, which makes food and utilities payments that much more of a stretch.
White-collar workers have seen the time to find a job stretch from a few months to easily six months or even a year. Add in the usual calamities like illness, car repairs, vet bills, and home repairs, and the emergency fund becomes critical to keeping your head above water.
The keys to building an emergency fund are to start small and automate it. Open a high-yield savings account. Either do this with a different bank or hide it on your banking app’s home page. Out of sight, out of mind. You don’t want to think of this as easily available.
The best way to fund it is through payroll deductions. Ask your HR department to split your paycheck. Or establish an automatic transfer from checking to savings with each paycheck. If you’re struggling, this might be $5 going to savings each paycheck. If you are more comfortable, it might be $50, $100, or more. Make sure it’s an amount that won’t affect your normal spending. But if it’s not in your checking account, it won’t get spent. Waiting until the end of the pay period or the end of the month to transfer money to savings usually means there’s no money to transfer. Pay yourself first.
Stick with this for a few months. If the amount you started with is causing stress: now you’re wondering how you are going to pay your bills or buy groceries, reduce your savings. If you are comfortable and didn’t really notice it, increase the amount you save per paycheck.
If you have debt, outside of a mortgage or car loan, build your emergency savings to $1,000. Then start paying down your debt as quickly as possible. Consider a second job for a few months, with all that income going to debt. Once the debt is paid off, start building your emergency savings again.
Your emergency fund becomes a buffer, allowing you to weather whatever life throws at you. While the emotional impact will still be there, having a financial cushion can make it all much easier to handle.
Your action item this week is to check your credit. Pull your report at annualcreditreport.com. Look for errors or accounts you don’t recognize.
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CovingtonAlsina is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.