emergency funds

Why an Emergency Fund is Crucial

Nobody wants to spend time thinking about the various things that can occur unexpectedly in daily life, such as job losses, vehicle breakdowns and sudden medical emergencies. However, if you aren’t financially prepared for emergencies such as those mentioned here – or any other unexpected event that will cost money to rectify – you won’t only have the stress of the situation itself to deal with; you’ll also have the additional worry of wondering how you’ll be able to cover these unexpected expenses. 

How much should be Saved for Emergencies?

While there’s no hard and fast answer to this question, many experts recommend having an emergency fund consisting of at least $500. This will often be sufficient to cover an unexpected repair or expense that wasn’t part of your originally planned budget. 

Once you’ve managed to save $500, it’s recommended that you continue to build your savings in this account until such time as you have funds available to cover at least three to six months worth of regular expenses. If you’re a freelancer or seasonal worker, you may need to consider saving a bit more to cover the times when you’ll be out of work. 

How to Build an Emergency Fund

While you may think it will be impossible to build an emergency fund, there are often random expenses in a budget that can be trimmed or even eliminated – even temporarily. Here are some ways in which you can get the savings ball rolling:

  • Cancel subscriptions. While items such as Amazon Prime, Netflix and Hulu are nice to have, they aren’t genuine necessities. Halting these for even a month or two can help give your emergency fund the boost it needs
  • Save that stimulus check or tax refund. Although it’s tempting to blow that stimulus check on a vacation, new clothing or other treats, you’ll enjoy more peace of mind over the long term if you know there’s money set aside to cover an emergency. Consider treating yourself to something small and saving the bulk of that check
  • Redirect your small change. Nowadays, there are several apps available that can help you save by rounding up purchase amounts and putting those few pennies, dimes and quarters into your emergency fund account
  • Pay yourself first. If your employer offers direct deposit on payday, they may be able to divide your paycheck in such a way that a small portion of it goes automatically into your emergency fund account. Not seeing those funds in your main checking account will make it less tempting to use them
  • Sell unwanted items. Have your hobbies/sports/interests changed over the years and you’re now sitting with unused equipment relating to them in your garage, basement or attic? If so, consider placing ads to sell these items online. Funds obtained from this can then be placed into your emergency fund as well

It’s recommended that your emergency fund be a savings account that offers a good rate of interest, but that is also relatively easy to access. This will help ensure that while it can be obtained in an emergency, it won’t be too tempting to dip into it for non-emergency expenses. 

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Millennials-retirement

When Should Millennials Start Thinking about Retirement?

Research is revealing that although several millennials are making wiser financial choices than individuals of earlier generations, there are still a number of these younger folk who aren’t giving their retirement years nearly as much consideration as they should be. 

Many of the younger generation think that they won’t have to worry about saving too much for their retirement because of Social Security being available. However, the amount they will receive from this will not be nearly enough to cover their living expenses by the time they stop working – which is why now is the right time for them to start planning financially for their golden years. 

The Right Time is “Right Now”

As many as 50% of millennials have revealed that they don’t have any form of 401(k) and a mere 30% have mentioned that they have started to plan for and save money towards their retirement. However, the general consensus among the younger generation is that they want to enjoy themselves right away, meaning that they end up delaying saving towards retirement for as long as possible. 

It’s essential for millennials to understand that “right now” is when they need to think about saving and start taking the required action to do so. 

Learn about the Power of Compounding Interest

Several younger people aren’t aware of how compounding interest works and that it will be most effective when taken advantage of during their 20s and 30s. For instance, a 20 year old who invests a $1,000 lump sum and adds just $100 to it each month with a 4% interest rate will end up with more than $70,000 after 30 years. However, a 50 year old who invests the same amount, adds the same amount monthly, and gets the same 4% interest will only have about $15,000 saved after 10 years. 

Halt Unnecessary Spending 

A number of employers have the option for employees to contribute to various sponsored retirement funds, with the most common option being that of a 401(k). While the 3% match that most companies offer might not sound like much money, the truth is that it will accumulate substantially over time – thanks again to compound interest. 

Most employers off the 401(k) contribution match as a voluntary option, meaning that millennials who don’t enroll as soon as they’re eligible to do so will effectively be losing out on a 3% raise on their earnings. This is one situation that can be classified as obtaining free money, which is why it’s crucial for millennials to take full advantage of an offer like this. 

While it is often tempting for the younger generation to spend their earnings on the latest vehicles, gadgets, and other “nice to have,” the truth is that this will all come at the demise of their retirement. If you are a part of the millennial generation and you’re concerned about having enough funds to retire at some point in your future, schedule an appointment with our advisory team today.

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learning-retirement

Learn More about Retirement before Taking the Plunge

A number of working individuals delay planning for their retirement because they think it’s too far in the future to worry about for the time being. However, the truth is that the day you turn 60 or 65 will arrive a lot sooner than you realize so it’s important to familiarize yourself with as much information as possible pertaining to retirement – before leaving the office for the last time. This can be done in the following ways.

Read, Read and then Read some more

Nowadays, there are more blogs, news articles and well-written books that cover the various aspects related to retirement. Spending some time reading about topics such as available investment options, dealing with the extra time you will have on your hands after stopping work and whether you should consider working part-time or not to keep busy and perhaps supplement your income will go a long way in helping you to prepare for this time of your life. 

Network with Others who have Retired

Another great way to learn more about what retirement is like is to network with individuals who have already stopped working and are now living off of their investment income. Most of these individuals will be able to tell you how to make the most of your limited funds and still enjoy your newly found free time to the fullest. Several retirees will normally even be willing to provide advice regarding finding an honest and reliable investment specialist as well. 

Seek Professional Financial Advice 

While it’s possible for fellow retirees to give you leads or information about specific investment brokers or advisors, they will not be able to tell you how or where to invest your finances. As such, it’s crucial that you obtain professional financial advice before purchasing any retirement or investment products. While you’re looking for the right investment broker, ensure that you obtain as much information as possible before making your final decision – your retirement literally depends on it. 

Start Saving as Early as Possible

One of the best ways to help ensure that your golden years will be as financially stress-free as possible will be to start making the right money-related decisions immediately. The sooner you get started with setting up and contributing to as many savings plans as you can realistically afford to, the more your money will be able to grow because of the power of compounding interest over the years. 

Don’t wait until you’re in your late 40s or 50s to start putting money away for retirement because this could mean that you’ll have to save as much as 70% of your disposable income just so that you’ll be able to afford the essentials by the time you reach your 60s and 70s. 

If you are keen to learn more about ensuring that your retirement years will not be spent stressing over finances, get in touch with our team today. We will assess your financial situation and help compile a realistic savings and investment plan for you. 

 

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kids learning money

How Early Should Kids Learn about Investing?

Many parents have debated with regards to what the best gifts to give their children over time would be. While aspects such as a good education, books, educational games, toys and puzzles and a stable home environment are all crucial, one of the most important gifts of all that is often overlooked is that of a good financial education.

Children who don’t learn about using finances correctly and investing a portion of their earnings often end up becoming adults who generate excessive levels of consumer debt because of living beyond their means. In many cases, they may even rely on their parents for financial support well into adulthood as well. 

Below are a few ways in which you can start preparing your children to learn as much as they can about making their money work for them at the earliest possible age.

Introducing Basic Money Concepts

Many children will be able to understand the simpler aspects regarding money from around the ages of three to four years old. As such, you can start off by talking about money whenever it’s relevant to your daily life. For instance, if you’re out shopping with your child, show them how you’re comparing prices and looking for items that are on sale so that you can save money.

Allow them to observe while you’re paying bills and explain to them how much essentials like heat, electricity, groceries, rent or mortgage payments and clothing costs. If you’re paying down debt, explain to them why you have it and how long it will take for you to repay it in full. If your children are slightly older, they will be able to understand the concept of how interest works on debt as well. 

Moving on to Investing

Although teaching children to pay bills on time is crucial, it’s just as important for them to know how they can make their money work for them over the long term by investing a portion of any funds they may receive as gifts, allowances, or even from working at a part-time job when they’re older. 

  • Start small. Show your child how investing works by having them save a portion of their money so they can watch it grow over time. Allowing them to learn this way while they’re young will help prevent them from making costly investment mistakes when they’re older
  • Let your kids invest in something that matters to them. This will help them become more interested in how their money can grow over time
  • Have investing become a new family habit. Whenever your child receives money from an allowance, additional chores or even as gifts from friends and family, have them invest a portion of it as quickly as possible. Over time, saving and investing a portion of whatever income they receive will become second nature – which will pave the way for good financial decisions to be made throughout their lives

Teaching your children to be financially savvy from as early an age as possible will help prevent them from making the same money mistakes you may have made in your early adult years. If you would like to give your kids a head start by having them learn about investing and you’re unsure of how to go about it, contact us today.

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