Dealing With and Getting Through Financial Emergencies

Ask the Advisor – Dealing With and Getting Through Financial Emergencies

Posted on May 6, 2020 by Mark Seed

To quote Mr. Mike Tyson once again on my site:

“Everybody has a plan until they get punched in the mouth.”

-Mike Tyson, former heavyweight boxing champion.

How true.

I’ve been doing a lot of reflecting and thinking during this financial crisis – given we all got punched in the mouth to some degree. In working towards our personal goals we’ll have deal with and get through some financial emergencies from time to time.

Recently, I’ve written about the following as I ponder what insane market and economic calamity has occurred over the last couple of months:

How Might I Prepare For An Upcoming Global Recession?

With my inbox overflowing in recent weeks with questions, emails and more financial perspectives from readers, I thought it would be interesting for today’s post to bounce a few questions, a few theories off an advice-only, Certified Financial Planner® with Money Coaches Canada.

Enter in, Mr. Steve Bridge!  Steve, let’s dive right in…

I recently got a question in my inbox about saving versus investing. I see savings as money to be spent or needed short-term (say, within a year or so). That should be in cash. I see investing as money to be grown long-term (not needed for another 5+ years). With many people dealing with a variety of financial changes and challenges right now do the same way and why or why not?

I agree with your definition, Mark. And one is not necessarily more important than the other. We hear about investing all the time, probably because it is more exciting, but saving is just as important to financial success. In fact, you could argue that saving is more important, because if you can’t save, you won’t have money to invest. Saving has to come first!

Not having savings could be a sign that you are spending more than you are making (living above your means) which, as we’ll touch on below, is a serious problem. This leads us around to cash flow, the most important piece of financial security and success (which we’ll also discuss below).

This COVID-19 crisis has many people rethinking the value of any emergency fund. I’ve received a number of emails on this subject. Although I can’t speak for what others need or want, I know we keep our emergency fund rather constant at this minimum level. What are your suggestions to help people establish a fund after they deal with this crisis?

First of all, I love that you have an emergency fund, and the reasons you state in your article are spot on. When an unforeseen event happens, the emergency itself is stressful enough; adding financial worry on top of it makes it even worse. The emergency fund takes one stressor (the financial implication of the event) away.

In my opinion, a reasonable target for an emergency fund should be a minimum of three months’ necessary expenses. Some people say six and I have even heard of having an entire year (this seems excessive to me), but to me three seems like a reasonable number to aim for. Retirees or near retirees may already have significant amounts of cash on hand for lifestyle spending or guaranteed retirement income from a pension, so this guideline doesn’t necessarily apply to them.

To continue reading, please go to the original article here:

https://www.myownadvisor.ca/ask-the-advisor-dealing-with-and-getting-through-financial-emergencies/