
January is Financial Wellness Month – Emergency Funds
After the hustle and bustle of the holiday season comes January, which also happens to be Financial Wellness Month. This month-long observance is a great reminder early in the year of why you should start building a strong financial foundation for the year ahead.
“An emergency fund is the cornerstone of financial wellness. It’s a dedicated pool of money for unexpected expenses, like car repairs, medical bills, or sudden job loss,” says Darren Nomberg, Senior Vice President, Investments at David Lerner Associates, Inc.
“Having an emergency fund provides peace of mind, knowing that you have a cushion to rely on when life throws a curveball.”
Americans are not Saving Enough
Bankrate’s 2024 Annual Emergency Savings Report shows that 59 percent of people are concerned they couldn’t afford basic living costs for even a month if they lost their primary income. Over half (56 percent) of U.S. adults also lack the savings to handle a $1,000 emergency expense.
Experts often recommend saving enough to cover at least 3 months of living expenses; 6-9 is even better.
However, building an emergency fund doesn’t happen overnight. Start by setting aside a small amount each month, even if it’s just $50 or $100, and watch your fund grow over time. Every contribution, no matter how small, brings you closer to financial stability and reduces the need to rely on credit cards or loans in emergencies.
How to Build and Maintain Your Emergency Fund
Building an emergency fund is an ongoing process that requires commitment and consistency.
Here are some practical steps to get started:
- Set a Realistic Goal: Determine how much you need in your emergency fund based on your monthly expenses. Start with a smaller goal, like one month’s expenses, and gradually build from there.
- Automate Your Savings: Set up automatic transfers from your checking account to a separate savings account dedicated to emergencies. Automating the process makes it easier to stick to your goal.
- Cut Non-Essential Expenses: Review your budget and identify areas where you can reduce spending. Redirect those savings to your emergency fund.
- Avoid Temptation: Keep your emergency fund in a separate account, ideally one that’s not easily accessible, to prevent unnecessary withdrawals.
Maintaining an emergency fund is just as important as building it. If you have to use it, prioritize replenishing your fund as soon as possible.
The Role of Insurance in Protecting Your Finances
While an emergency fund covers unexpected expenses, insurance provides a broader layer of financial protection against major life events that could lead to financial hardship. Insurance policies such as health, auto, home, and life insurance are critical to safeguarding your wealth and assets.
For instance, medical expenses can be incredibly costly, and health insurance ensures you won’t have to dip into your savings or emergency fund to cover them. Similarly, auto and home insurance protect your assets from losses due to accidents, natural disasters, or theft. Life insurance provides financial support for your loved ones if something happens to you, allowing them to maintain their quality of life and cover expenses.
Choosing the right types and amounts of insurance coverage is an essential part of your financial wellness plan. By having adequate insurance, you can mitigate financial risks and protect yourself and your family.
Asset Protection Strategies to Consider
Asset protection is a key aspect of financial wellness, mainly as your wealth grows. Protecting your assets involves using legal strategies to shield your wealth from potential creditors, lawsuits, or unexpected liabilities. While it may sound complex, there are simple steps you can take to secure your assets.
One common strategy is to invest in retirement accounts, like 401(k)s or IRAs, which are often protected from creditors under federal law. Trusts are another tool that can provide asset protection, especially for high-net-worth individuals. Additionally, ensuring that you have proper legal documents, like a will or power of attorney, can help protect your assets and ensure your wishes are followed.
Asset protection strategies vary depending on individual needs and goals, so it may be worth consulting with a financial advisor to determine the best approach for your situation.
Combining Emergency Funds, Insurance & Asset Protection for a Solid Financial Foundation
Emergency funds, insurance, and asset protection play distinct but complementary roles in building a solid financial foundation. Together, they create a safety net that protects you from various financial challenges, from small, unexpected expenses to larger, life-changing events.
Consider this layered approach as a way to “bulletproof” your finances. Your emergency fund provides immediate, accessible cash for minor disruptions. Insurance offers protection for more significant events, like illness or property damage. Asset protection strategies ensure your wealth is safeguarded over the long term, shielding it from unforeseen legal and financial threats.
By integrating these three components into your financial plan, you can rest easier knowing that you have a robust system to protect your financial future.
Financial wellness is more than saving money; it’s about building resilience and security in your financial life. By prioritizing emergency funds, you’re preparing for the unexpected and ensuring a stable financial future for you and your loved ones.
Embrace Financial Wellness Month as an opportunity to assess your current financial preparedness and take the necessary steps to fortify your finances for 2025 and beyond.
Ready to take control of your financial wellness? Start building your emergency fund today. Visit David Lerner Associates for more resources on financial planning, insurance options, and asset management. Let us help you lay a solid foundation for a financially secure future.
Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable– we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.