Financial Advisors Recommend Personalized Emergency Funds amid Economic Uncertainty
In the face of economic uncertainty and potential financial upheaval, financial advisors are emphasizing the importance of cultivating an individualized emergency fund. A recent CNBC Momentive survey illuminated a concerning reality: over half of Americans do not have an emergency fund. Even among those who do, 40% have less than $10,000 stashed away for unforeseen circumstances.
Traditional Advice and Its Limitations
Traditional financial advice often suggests maintaining an emergency fund that covers three to six months of living expenses. However, experts are now advocating for a more tailored approach, taking into account specific household and occupational circumstances. Factors such as volatility in one’s job sector, the stability of income, and self-employment status can significantly influence the recommended size of the emergency fund.
Perspectives from Financial Advisors
Certified Financial Planner, Andy Baxley, underscores the importance of considering these factors when establishing an emergency fund. Meanwhile, Niv Persaud advocates a strategy based on the potential duration required to replace income after a job loss. Despite recent layoffs in various sectors, the labor market remains robust, with the unemployment rate at a historic low of 3.4% as of April. However, job search durations can vary significantly, with higher-income individuals typically taking longer to secure new employment.
Specific Recommendations for Dual and Single-Income Households
For dual-income households, Persaud recommends nine months of emergency reserves, and for single-income households, up to one year. Kevin Brady, another Certified Financial Planner, suggests a range of three to six months of expenses depending on job security. However, he stresses that households with highly correlated incomes may require a larger fund. Ultimately, personal comfort levels with financial security may dictate the size of the emergency fund beyond standard recommendations.
Other Financial Moves to Consider in 2024
Apart from building a robust emergency fund, there are other financial moves individuals should consider in 2024. These include contributing to a 401(k), opening an Individual Retirement Account (IRA), a brokerage account, a 529 plan, and a Health Savings Account (HSA). Dominic James Murray, CEO and independent financial advisor at Cameron James, further advises tackling debt, diversifying investments, retirement planning, and estate planning. He also stresses the value of working with a qualified financial advisor for holistic financial management.