It’s understandable that most people don’t like to envision worst-case scenarios. But the fact is: they do happen. Whether it’s a natural disaster, a military conflict, a tragic accident or a political upheaval, emergencies are the kind of things we would wish on no one, but that need to be carefully studied and planned for in order for those in a position to helpÂ to respond quickly and efficiently, saving lives and preserving infrastructure.
Along a similar line of thought, many financial experts now recommend that individuals or families create “financial emergency funds” to keep them financially stable in the event of a crisis such as the termination of a job, the onset of an illness, or the occurrence of any other critical, unavoidable expense. How are these funds best structured? When should they be used? And are they right for everyone?
Most financial planners suggest that an emergency fund contain enough money to cover at least three months of living expenses: six months is a common guideline. It’s up to the individual to set up an account for these purposes. Some people feel more comfortable than others with a larger or smaller buffer-size: there’s not an explicit agreement among advisors as to what constitutes the “ideal” amount.
Like any savings plan, a financial emergency fund should start small and build from the little decisions that you can make about your everyday spending. As we’ve covered in a previous blog: put your plan into action andÂ pay yourself first.Â There are numerous resources such as “calculators” (another here) that will help you determine the best plan.
As people learn more about their personal financial habits, they will begin to see trends and patterns in their earnings, spending and debt, and learn to tailor their planning around these patterns.Â In the event of a personal financial emergency, you may need some help getting back on your feet right away. Progressa is built to be a resource with which you can kick-start the deployment of a recovery plan – and, through interaction with the Progressa Score system, learn valuable insights that will carry you forward in the longer term.