LEXINGTON, Ky. (WKYT) - Regardless of the state of the economy, having an emergency fund is imperative. Not only can developing a safety net can give you peace of mind, but it could be essential if you run into any form of financial hardship. Independent financial planning advisor Josh Smith of Strategic Wealth Designers joined the newscast to discuss what habits you may want to put in place in order to build your emergency fund.
“Everyone needs some sort of an emergency fund, but the amount saved will vary,” Smith says. “We can think of the young saver, those in the middle of the road, and the pre-retirees or retirees. The young saver is in accumulation mode and has a lot of time until retirement. Those in the middle of the road are generally in their highest income-earning years, typically between their 30s, 40s, and 50s. And the last group is 5-10 years out from retirement or retired.”
For young savers, the general rule of thumb of saving six months of expenses is overwhelming. Instead, what they should focus on is saving whatever they can. Young savers can use the 70/20/10 rule in which 70% of their income is used for living expenses, 20% is put towards debt, and 10% is used to save in a 401(k) and for their emergency fund. For those that are in the middle of the road, six months is more realistic. Retirees would want closer to a year in savings.
“Saving early can help for many reasons,” Smith says. “Establishing an emergency fund while young can help prevent any major setbacks or debt accumulation. Additionally, saving in your 401(k) or another retirement plan will allow you to invest that saving and benefit from compound interest over time. The time to start saving is now.”
Having an emergency fund should be a priority in your budget to help account for unexpected situations later on. To see additional stories surrounding business and economic news for the Lexington area, visit https://www.WKYT.com/MoneyMatters/ and if you have a question for Josh send an email to firstname.lastname@example.org.
Copyright 2021 WKYT. All rights reserved.