Emergency Savings Landscape in State of Emergency

Conventional, valid wisdom dictates that everyone should have an emergency savings fund to cushion blows from surprise expenses, such as automotive, healthcare or other financial shocks.

Owing to the point that each person’s personal financial situation is unique, there isn’t a linear dollar amount one should have in emergency fund, but a solid rule of thumb is that the fund should be able to cover at least couple, or several, months’ worth of expenses. Likewise, one firm rule is that emergency cash should be held in a savings account or another cash instrument. Point is this capital is for an unexpected event and you don’t want wait for a few days for a stock trade to settle to access the cash.

“Most experts believe you should have enough money in your emergency fund to cover at least 3 to 6 months' worth of living expenses,” according to Vanguard.

Though not the most glamorous of pursuits an advisors can engage, helping clients establishing emergency savings plans and building up those reserves are value-adds. Chances are, you have clients that are prime candidates emergency savings, including freelancers, self-employed folks and retirees.

Time Is Now to Tackle Emergency Savings

Advisors should also note that now is an appropriate time to broach the subject of emergency savings with clients. As noted by a recent Bankrate survey, 81% of Americans did NOT add to emergency savings this year.

“More than half (57 percent) of those who haven’t boosted their emergency savings or have no such savings say inflation is keeping them from saving more right now, while 38 percent say the reason they’ve not increased savings is they have too many expenses,” according to the research firm.

Combine inflation with elevated mortgage/rent payments and soaring auto loan and credit card obligations and it’s easy to understand why many people are struggling just to get by let alone bolster savings. As a result, folks feel behind on emergency savings.

“More than half of Americans (60 percent) say they’re behind where they should be when it comes to emergency savings. This is composed of 38 percent who say they’re significantly behind and 22 percent who say they’re slightly behind,” adds Bankrate.

To their credit, Gen Z and millennials are among the demographics that slightly more emergency cash set aside this year than they did last year.

How Advisors Can Help

As noted above, 57% of those polled by Bankrate say inflation is hindering them from improving emergency savings accounts and another 17% blame high interest rates. Indeed, advisors cannot do much about those scenarios, but they can help clients on other fronts.

Thirty-eight percent of those queried said their emergency savings outlook is grim because they have too many expenses and another 21% say they’re being held back because of debt. Another 8% say their emergency savings efforts are suffering because their discretionary spending is too high.

With the right budgeting strategies, advisors can help on all three fronts, potentially freeing up clients to not only add to emergency reserves, but also make larger contributions to investment accounts.

Related: Millennials Surprisingly Interested in Bond ETFs