5 Emergency Savings Tips for Building a Financial Safety Net

5 Emergency Savings Tips for Building a Financial Safety Net

September 04, 2023

From unemployment to a sudden health crisis to a crippling accident, being financially prepared for life's many challenges may smooth the road ahead. Whether you are just starting out or have been working toward financial health for years, there are a few key steps you may take now to help construct your financial safety net.

Make a Budget

It is tough to assess your financial health if you do not know where your money is going. By tracking your income and spending—whether through an app or the old-fashioned pencil-and-paper method—you might discover where each dollar is being allocated and areas in which you may save.

Save for Emergencies

You may have savings already—funds earmarked for a vacation, a health insurance deductible, or a new vehicle. But having general emergency savings may provide an additional source of stability, as these savings could be there even after your vacation is over and your new vehicle is purchased.

Many financial professionals suggest saving the equivalent of three to six months of expenses, which may carry you through some major trouble, such as an expensive vehicle repair, a sudden medical emergency, or a job loss.

Carry Adequate Insurance

Without insurance, most people could not afford to rebuild their homes or replace their possessions after a disaster. Nor could they afford major surgery or cancer treatment. And for young families, the unexpected death or disability of the breadwinner may be devastating.

Having adequate insurance coverage may provide a stable source of funds when disaster strikes. Policies run the gamut from life, health, and disability insurance to homeowners, renters, and auto insurance.

Umbrella insurance may also be an option for those with a higher net worth who would like to have more coverage than is available under the typical policy limits. As the name implies, umbrella insurance provides general liability insurance as an "umbrella" over your other policies, such as home or auto insurance. If a covered claim exhausts the limits of these other insurance policies, the umbrella insurance policy kicks in, providing additional coverage up to the maximum policy limit.

Consider a Side Hustle

You might benefit from a side hustle if your budget often feels stretched. This effort may mean working overtime at your full-time job, driving for a ride-share or food delivery company, or capitalizing on a special skill like cake decorating or teaching instrument lessons. These extra funds may be used to fund a retirement account like an individual retirement account (IRA) or Roth IRA—or, if you prefer, a vacation or other special splurge.

Set Aside Funds for Retirement

It is never too early to begin thinking about retirement because decades in the workforce may pass more quickly than expected. And the earlier you start saving and investing, the more money you might have when you retire. By automating your retirement contributions and increasing them whenever you get a raise, you may take a "set it and forget it" approach, making the savings process as automatic as possible.

Important Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which insurance product(s) or investment(s) may be appropriate for you, consult your financial professional prior to purchasing or investing.

Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal.  Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.

The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.

For information about specific insurance needs or situations, contact your insurance agent. This article is intended to assist in educating you about insurance generally and not to provide personal service. They may not take into account your personal characteristics such as budget, assets, risk tolerance, family situation or activities which may affect the type of insurance that would be right for you. In addition, state insurance laws and insurance underwriting rules may affect available coverage and its costs. Guarantees are based on the claims paying ability of the issuing company. If you need more information or would like personal advice you should consult an insurance professional. You may also visit your state’s insurance department for more information.

This article was prepared by WriterAccess.

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