Like most journeys of a thousand miles, getting to a joyful, successful and prosperous retirement begins with one step.
So if you had the chance to better prepare for retirement and important life-changing financial decisions now would you take that first step? Most of us probably would, right?
“No matter your situation now, there is a way to reach a better position for the future.”
This is what the character, simply named “The Guide,” writes in the letter John & Sue Smith receive in the prologue of my book, The Five Crossroads.
Preparing for the so-called thousand-mile journey ahead and getting our “financial house” in order begins with forming a foundation with some key protections against the unexpected.
Building your financial house’s foundation starts with the cornerstones – each representing a type of protection you will need from financial setbacks. We do this, as The Guide says, “by building from a position of strength and support so we can plan for the worst while hoping for the best.” This foundation will help protect you from accidents, health-related events and market losses, among other things.
In this post, I would like to talk about the first cornerstone – emergency savings. At Eric Scott Financial, we recommend you have 3-12 months’ income set aside in case of a financial crisis. Sounds simple, but how many of us really instill the financial discipline and effort it takes to putting that stone in place?
Life is unpredictable, so having this fund available when “life” happens can help protect you from a major financial setback. Another way to think about it: “Without this savings built up, you could potentially find yourself in a debt cycle, paying off one debt only to find yourself stuck again when another crisis appears,” as The Guide says.
While you’re establishing an emergency fund, you continue to pay off as much as possible on your current debts. And with an emergency fund in place you won’t have to accumulate new debt because you already have the savings to fall back on if another accident or major health bill occurs.
As this article in The Balance notes, “Going without an emergency fund is like operating without any savings.” It’s also easier to pay extra money on debt right away when you have a cushion for unexpected expenses.1
While a growing percentage of Americans are realizing their need for an emergency fund, about 50% still don’t have one, according to the FINRA Investor Education Foundation National Financial Capability Study, 2015. The good news is that 56% of respondents age 55 or older have set aside three months’ worth of emergency savings, the FINRA survey found. 2
Another reason you want to establish an emergency fund is that it can also help keep your financial stress levels at a minimum. You will have the confidence that you have the money to withstand unexpected events like a job loss, medical emergency, home repairs you didn’t count on or other costly financial hardship, without having worries about money taking up any added bandwidth.
Overall, most of us are all too aware that Americans worry about running out of money in retirement. A mere 31% of the 1,000 investors surveyed by Legg Mason for its 2018 Global Investment Survey (LMGIS) believe they will have enough saved to enjoy a comfortable life in retirement. The survey, released in November, adds to the responses out there about concerns over financial preparedness in retirement.
The Legg Mason survey also found that nearly 4 in 10 respondents (36%) reported that they or their spouse would work longer and/or participate in the gig economy if they were to come up short of their retirement funding target.3
At Eric Scott Financial, we don’t believe coming up short is an option. Ask yourself today, now, if you’re ready to lay the groundwork for your financial house by properly establishing an emergency fund. What have you got to lose? Maybe debt you don’t need? Financial stress? Or even regrets about making poor financial decisions?
Call us today at 435.773.9444. We want to be sure you are among the Americans who don’t worry about running out of money in retirement. We offer retirement income strategies with little to no market risk so you won’t have to participate in the gig economy (unless you want to!) and will be able to maintain your current lifestyle regardless of the fluctuations of the market and economy.
1 “8 Reasons You Need an Emergency Fund,” thebalance.com https://www.thebalance.com/reasons-you-need-an-emergency-fund-2385536 (accessed November 9, 2018).
2 “Financial Capability in the United States 2016,” FINRA Investor Education Foundation, usfinancialcapability.org http://www.usfinancialcapability.org/downloads/NFCS_2015_Report_Natl_Findings.pdf (accessed November 9, 2018).
3 “Legg Mason Survey Shows Only 31% Of U.S. Investors Believe They Will Have Enough Money Saved For A Comfortable Retirement,” Legg Mason Global Asset Management, leggmason.com https://www.leggmason.com/content/dam/legg-mason/documents/en/corporate-press-releases/market-perspective/2018/lm-gis-retirement-release-10-18.pdf (accessed November 9, 2018).