Thanksgiving Reflections
Thanksgiving and traditions go hand in hand. A large meal, football and times of reflection are the most common. And then there are the traditions we have long endured, like my father's annual reading at the dinner table. A folded article or newspaper clipping always finds its way out of his shirt pocket with an eager audience awaiting...(just a little sarcasm). Years ago Readers Digest dominated this annual reading but now it comes from a variety of sources, thanks to the Internet and forwarded emails. We have covered most all Thanksgiving topics including pumpkin types, why Ohio's corn is special, of course the pilgrims and a few variations on the English-speaking Indian Squanto. Whatever the story, it always directs our discussion to the real reason for our family tradition, which ends with each family member and guest having a chance to reflect and share what they are truly thankful for.
I hope your Thanksgiving was a time of reflection of the year gone by, shared with family, football, and stuffing ourselves with more than we should attempt. The traditions we share, whether by our choice or required by the family create memories we will cherish forever.
The financial planning tie-in... a good tradition
We have talked in recent newsletters about budgeting and life insurance. Another critical principal of planning is to have an Emergency fund. Some call this a rainy day fund, slush fund or just savings. It's a good tradition to make sure you have resources set aside.
"It is wise and good stewardship to save today for what you might need tomorrow or later down the road."
The pilgrims learned this principle very quickly and that fellow Squanto I mentioned earlier, helped them prepare and learn how to survive in lean times.
Bankrate.com recently reported that 28% of Americans have no emergency savings and among those that do have money set aside, 50% had less than 3 months of expenses.
So what are the "emergencies" I am talking about? They range from job loss, an extended period of lower or no income for a small-business owner or commission sales person, illness, natural disasters, and even smaller, yet important issues to resolve such as car repairs or a broken washer.
How Much do you Need?
6 months is the minimum amount you need. Now realize that this is not half (6 months) of your full annual salary. It is calculated on your living expenses- necessities such as housing, utilities, basic bills and basic food. In a tight money time, you will not be eating out or shopping. If you have lost your job, you won't be paying income taxes or making a 401k contribution. 6 months is even more necessary if your family is dependent on only one income.
Where do you keep it?
Your emergency fund should be someplace easy to access and liquid. Banks are safe, but are not helpful with their 0.1% savings rates; good luck beating inflation. A CD is not generally recommended for this type of money because it is not liquid and you will pay a fee if you need it prior to maturity.
A strategy I use with many of my clients is to have them keep at their bank what is comfortable for their cash flow and to be able to easily pay their monthly bills. The remaining amount of their calculated emergency fund is then placed in a Joint investment account to be invested in lower risk but much better yielding rates than the bank can provide. A portion is kept in cash, majority in short term bonds, some in moderate term bonds and then, in some cases, when the 6 month need is fully met we may invest in dividend stocks. This approach creates buckets of risk ranging from cash to stocks.
"The haves and the have-nots can often be traced back to the did and the did-nots." -D.O. Flynn
How do you start?
Today is the day.
A detailed budget will uncover waste and opportunities to put towards your emergency fund.
Start a direct deposit from each paycheck.
Earmark a portion of each bonus or larger check you may receive.
Here is a calculator to help you know what to shoot for: Click here
To your financial freedom,
Luke Fields, CFP®
Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members. High-yield (below investment grade) bonds are not suitable for all investors. When appropriate, these bonds should only comprise a modest portion of your portfolio. There is an inverse relationship between interest rate movements and bond prices. Generally, when interest rates rise, bond prices fall and when interest rates fall, bond prices generally rise. Investing involves risk and you may lose your principal. Dividends are not guaranteed and must be authorized by the company's board of directors. Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Keep in mind that there is no assurance that any strategy will ultimately be successful or profitable nor protect against a loss. Any opinions are those of Luke Fields and not necessarily those of RJFS or Raymond James. You should discuss any tax or legal matters with the appropriate professional.
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