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By: Joseph Biloon | Financial House
Emergency funds are critical financial buffers that provide clients with confidence and flexibility during life’s most unpredictable moments. Yet, because they may feel less urgent or exciting than other financial milestones, like investing or buying a home, they can sometimes be overlooked. Whether it’s a sudden job loss, a medical emergency or a volatile market, clients can see long-term plans significantly derailed without a reliable safety net in place. It is our responsibility as advisors to underscore that building true financial resilience begins with protection.
Building the Right Emergency Fund for Each Client
While the common rule of thumb suggests saving three to six months’ worth of expenses, there’s no one-size-fits-all approach when it comes to emergency fund planning. A helpful starting point is asking clients what amount would make them feel financially secure, then offering guidance to refine that figure based on income, essential expenses and lifestyle.
For younger clients just getting started, that target may be smaller and built up over time. For pre-retirees or clients with significant assets at risk, it likely needs to be higher. As net worth grows and responsibilities change, so should the emergency fund.
Overcoming Resistance and Misconceptions
Setting aside money for something that might never happen, especially when it could fund a want, like a vacation, can make emergency fund planning a tempting corner to cut. As advisors, it is vital to reframe this mindset and emphasize the importance of planning for the unplannable.
The COVID-19 pandemic stands as one of the clearest teaching points on why preparation matters. It struck without warning, disrupted livelihoods and left many suddenly out of work and financially vulnerable. “Black swan” events like the pandemic can serve as a powerful reminder to clients that having accessible, reliable cash reserves is essential for both small setbacks and catastrophic moments.
However, clients can understand the value of emergency funds and still feel overwhelmed by the idea of setting aside tens of thousands of dollars. Remind clients that emergency funds can, and should, be built gradually and adjusted over time. If a client expresses hesitation, work with them to create a manageable monthly savings plan based on their personal goals. For a young person, this could mean setting aside just $100 a month—enough to start building momentum without disrupting their budget. If something unexpected does happen along the way, even having one month of expenses saved can make a meaningful difference.
Emergency Funds in Retirement Planning
As the pandemic illustrated, emergencies don’t always take the form we expect. For retirees and pre-retirees, a market downturn can be just as disruptive as a major medical bill or unexpected home repair.
In my practice, I’ve worked closely with clients approaching or entering retirement to build dedicated cash reserves specifically for this purpose. A significant decline in the market immediately before or after retirement can do lasting damage. If a client’s portfolio takes a hit early on, their withdrawal rate may spike beyond what was initially planned, greatly increasing the risk of outliving their assets. Even a short-term downturn can have a compounding effect, forcing clients to sell investments at a loss to meet their income needs and permanently reducing their future income potential.
Instead of selling at a loss, clients can draw from their emergency funds while markets recover, then replenish the reserve once stability returns. Advisors should be intentional about discussing this scenario during retirement planning to ensure both clients’ financial protection and peace of mind in uncertain markets.
The Role of Emergency Funds in Holistic Planning
Advisors should make emergency fund planning a foundational part of client conversations from the very beginning of a relationship. They are a powerful tool for promoting financial wellness and can have a lasting, even life-changing impacts on a client’s overall security.
This is the essence of holistic financial planning—looking beyond investment performance to ensure every part of a client’s financial life is aligned, protected and prepared. A comprehensive plan considers not just how to grow wealth, but how to safeguard it. For example, if a client lacks established emergency savings, they shouldn’t be directing all their free cash flow into the market.
It’s our responsibility to help clients understand that investing without a financial cushion isn’t a plan, it’s a risk. And when an emergency fund is eventually needed, it’s often the part of the plan clients value most. By helping clients prepare for life’s uncertainties, you’re not just managing their money—you’re building trust, resilience and long-term peace of mind.
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