A recent survey by Bankrate revealed that about 75% of Americans have financial regrets, and interestingly, the majority of these regrets are related to savings rather than debt. The survey found that 39% of respondents regretted their lack of savings, while only 24% regretted taking on too much debt.
Generational Discrepancies
One of the notable differences across generations was the issue of saving for emergencies. With the availability of high-yield savings accounts offering 4% or more, it has become easier to build emergency funds. However, it was observed that baby boomers and Gen Xers tended to regret not starting to save for retirement early enough. On the other hand, Gen Zers and millennials were more likely to have regrets about not saving enough for emergencies. In fact, 21% of Gen Zers and 17% of millennials shared this sentiment.
The Importance of Emergency Savings
It is crucial to establish emergency savings according to financial experts, even amidst rising debt levels and higher interest rates. Dealing with unexpected emergencies without sufficient funds can quickly lead to costly debt.
Certified financial planner John Piershale advises individuals to always maintain a robust emergency fund. In his words, “Always keep a good emergency fund on hand.”
Determining the Ideal Emergency Fund Size
The ideal size of an emergency fund depends on various factors such as marital status and job type. According to Charles Thomas III at Intrepid Eagle Finance, “If you’re a single income household, think about a larger emergency fund than if you have two incomes in a household.” A general guideline is to aim for 3 to 6 months’ worth of living expenses for a dual-income household and 4 to 7 months for a single-income household.
It is crucial to prioritize building emergency savings to avoid potential financial regrets in the future.
Personal Finance: Building an Emergency Fund
In a recent interview with Picks, renowned personal finance expert Suze Orman revealed her recommendation for having not just one, but two emergency funds. The first fund should ideally have enough to cover essential expenses for 8-12 months in case of unforeseen events like job loss. The second fund, which should be smaller, aims to provide financial assistance for unexpected situations such as car breakdowns.
Certified financial planner Mark Struthers from Sona Wealth Advisors concurs with the importance of emergency funds, explaining that it is perfectly normal to accumulate extra cash for added peace of mind during a near-term economic downturn or personal challenges.
One vital aspect to consider, as emphasized by Greg McBride, the chief financial analyst at Bankrate, is the power of compounding. The earlier you begin saving, the more significant the potential for growth becomes. McBride suggests that neglecting to save early on may lead to regret and a realization of missed opportunities.
According to certified financial planner Derieck Hodges at Anchor Pointe Wealth Management, maintaining a solid foundation of emergency savings is essential. Unfortunate financial crises can befall anyone, and without the support of emergency funds, long-term strategies can be severely compromised. Hodges cautions against resorting to tapping into retirement plans or taking out 401(k) loans as stopgap measures, warning of the negative consequences that often follow such decisions.
Experts advise keeping your emergency fund easily accessible and liquid. It is generally discouraged to house emergency savings in retirement accounts like 401(k)s or IRAs due to strict penalties associated with early withdrawals. Similarly, brokerage accounts should be avoided as market instability can jeopardize the stability of funds. Certified financial planner Taylor Jessee at Impact Financial recommends more conservative and stable options, such as savings accounts or money market accounts (MMAs), for emergency funds.
For those looking to maximize their savings potential, we have compiled a list of the highest savings account rates available now.
Remember, building and maintaining an emergency fund is a crucial step towards securing your financial future. Start saving early and be prepared for whatever challenges life may throw your way.
