How to save and put away (for) an emergency fund

Everybody is talking about the importance of having emergency savings available in case of unexpected expenses, job loss or even for new opportunities.

The media mentions the importance of having short term savings in place, most advisors talk about it and the census is that this money should be instantly liquid with low volatility and no negative tax consequences attached to it.

But there are very few people talking about how to build a fund and very few that truly understand why it is so important and how it enhances the rest of your financial life.

So let’s start talking about how a nurse can get a short term emergency fund built up and let’s look at a  nurse client profile that we see in our practice quite often.

We will look at someone in their 30s, although this really is applicable to almost any age group, and we will look at the typical nurse  who has a 401(k) at work and they contribute about 7% of their income to this 401(K).

On the side they have a mortgage and they might also have a Roth IRA, and very often they have group term and group disability through their employer.

In their savings and checking accounts they have very little saved up.

We also often see student loans where payments are being accelerated in order to pay off the loans as fast as possible.

Assuming this individual earns $100,000 a year they could pause their $583 monthly 401(k) contribution allowing them to after taxes (assuming 25%) to put about $437 a month into a savings account.

At the same time they could take a look at their student loan payoff schedule and see if there is a way to stretch it out.

We have seen student loans go from around $1000/month to around $500/month by restructuring.

Now if that is the case an extra $937 a month could be saved and over a 12 month period an additional $11,244 dollars would be available inside of the emergency fund.

That brings us to the question of how much there should be in this fund and we would always like to see at least 6months to 1 year of living expenses saved up inside of a liquid easily accessible account.

Written by CreativeNurse Team

2016-22728   Exp. 5/18

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