The Power of Emergency Funds with Amida Wealth

This September with Amida is all about expanding our vision of wealth. Every Sunday, we help create thought around money. In other words, how to connect with money in a way that encourages a more balanced experience with wealth and what it represents in our lives. This Sunday, we talk about Emergency Funds and why they are important– the Amida way! 

First, we explore the feelings behind the concept of Emergency Funds. Ask yourself: what is the feeling that I get when I know I have emergency funds? How does this affect my everyday life, and the security I have when something unexpected happens? Next, we share ways to get started. Let’s begin! 

What Are Emergency Funds? 

Emergency funds are savings specifically set aside to cover unexpected expenses or financial emergencies. These funds act as a financial safety net, providing a cushion to help individuals and families manage unexpected crises without resorting to high-interest debt or depleting other savings.

The Concept of Safety & Emergency Funds 

The concept of safety in the context of emergency funds revolves around financial security and preparedness. Here’s how safety and emergency funds are interconnected:

First, The safety of an emergency fund also lies in its accessibility. These funds are typically kept in liquid, easily accessible accounts, such as high-yield savings accounts or money market accounts. They can be quickly accessed when needed, ensuring you can respond to emergencies promptly.

Second, the presence of an emergency fund contributes to peace of mind. Knowing that you have a safety net in place provides emotional and psychological security.

Third, the safety provided by an emergency fund also contributes to your ability to focus on long-term financial goals. Knowing that your immediate financial needs are covered, you can concentrate on saving for retirement, investing, and building wealth. In essence, the concept of safety and emergency funds is about being financially prepared and protected in the face of life’s uncertainties.

Step-By-Step Guide 

Creating an emergency fund is a crucial financial step to provide peace of mind and protection against unexpected financial setbacks. Here’s a step-by-step guide based on your provided recommendations:

1. Look For a High-Yield Account 

A high-yield account is a type of savings or investment account that offers a significantly higher interest rate or yield compared to a standard savings account or a checking account. In other words, the higher yield means your money can grow more quickly over time. If you feel you are going to touch it, set it up at a different location. Like Discover Bank or American Express Bank.  Many times, your advisor will have money market accounts that carry decent yields. Check with them.

2. Determine the Right Amount:

• Start by calculating your monthly living expenses. This includes rent or mortgage, utilities, groceries, insurance, transportation, and any other essential bills.
• Multiply your monthly expenses by the desired emergency fund coverage, which is typically recommended to be 6 months’ worth of living expenses. For example, if your monthly living expenses are $3,000, aim to save $18,000 ($3,000 x 6) for your emergency fund.

3. Save 20% More:

• To add a cushion to your emergency fund, aim to save 20% more than your target amount. In the example above, you’d save an additional 20% of $18,000, which is $3,600.

4. Set Up Automatic Savings:

• To make consistent progress toward your emergency fund goal, set up automatic savings. Treat it as a non-negotiable fixed expense, just like your rent or car payment.

Having an emergency fund in place is a responsible and prudent financial practice. Above all, It provides financial security and can help you navigate unexpected events.

Amida Bonus Advice

When it comes to savings, you can also create a fun savings account for an immediate goal or to make sure you intentionally set money to do something you value. Like travel. We like setting up Travel fun accounts for our clients and having them save regularly into it. This way when travel comes, you do it with a peace of mind and you come back truly refreshed instead of all nervous because you spent too much. Remember, this is all about setting yourself up for success. In sum, the more you practice – the better you become!

Amida Wealth Family Conversations 

At your next family or friends gathering encourage those around you to become curious about their feelings when it comes to money. What does an emergency fund feel like? What does it feel like to know that there are thousands of dollars in the bank, available, for emergencies only? In other words, how does this shift perspective when it comes to the goals pursued in life? What type of legacy does this leave for the next generation? Open up this dialogue and encourage those around you to discuss money more openly. Remember, that there is plenty of wealth to go around for everyone. We learn from each-other. Above all, remember that Amida is with you, every step of the way. 

Final Thoughts 

In summary, emergency funds are a critical component of financial well-being, offering protection, stability, and the ability to navigate life’s unexpected challenges with confidence. Rather than viewing them as a restriction on spending, think of them as a tool that empowers you to achieve your financial goals and live life on your terms. Above all, remember that Amida is with you every step of the way.