A “Curveball” Account
Last week I attended a National Financial Advisor Week conference in NYC. One of the sessions I sat in on was about managing student loans and other debts.
In my practice with clients who come for advice on how to pay off debt and manage cash flow, I noticed that debt often arises because there are no sufficient reserves set aside for emergencies. When unforeseen expenses come up that are not part of normal day-to-day household operations, where do most people go to pay for them? The credit card or home equity line of credit becomes a resource. Not good!
I personally always had a bit of a negative thought with “Emergency Fund” account name. The reason is simple: it signifies that there might be a problem or bad situation that needs to be addressed. I don’t like problems! No one does. I prefer happy and positive moments in life. Money is already inherently perceived as being confusing and difficult to understand by many people. If we add an “Emergency” label on top of that, it causes even more stress.
What I learned in this session is how to change the negative connotations of the “Emergency Fund” label. A more gentle way to name this account would be a “Curveball” account! What a cute label! Here is the reasoning: when life throws you a Curveball, you will be prepared to catch it! A totally different view.
Now just because we have a new way to think of this account, the principle of why you need to have one doesn’t change! I am still a big believer that everyone needs to have at least 3-6 months of living expenses in cash set aside to catch those “curveballs”!
A way to start one is to begin putting aside X amount of dollars every month until you reach at least 3 months of living expenses saved up. This will also be a good time to take a look at your budget. What are your fixed and variable expenses per month?
I use a passive budget tracking tool, www.mint.com, to help me track this. I know that expenses may vary from month to month. Take an average and use this as your guide to determine your total. For example: monthly living expenses are $6,000; 3 months= $18,000 and 6 months= $36,000.
A good parking place for your newly christened account can be a high yield online savings or money market account. Check www.bankrate.com for options and rates. I personally use, online savings account from www.ally.com.
When a life throws you a curveball, make sure you’re prepared to “Hit It”!