By Sophia Bera
NEW YORK (AdviceIQ) -- You probably go through many days feeling invincible. Bad things -- or even just the weird and unexpected -- happen to other people, not you. Wrong. When life throws you curves, almost always when you least expect, you need ready cash.
One possible curve: You come home to a wild turkey in your living room. A few months ago, one of my clients took a weekend trip with her boyfriend. On Saturday, they got engaged. On Sunday, they got a call that the patio door on their apartment "blew out."
No other details, no explanation. They headed home, worried on the whole ride and wondering what on earth happened. When they opened the front door and peeked inside, they found a mess of shattered glass -- and a wild turkey staring back.
"The damage," my client wrote me, "included [the] broken patio door from which the glass covered all of our furniture, desk, TV, three computers and the entire living space flooring."
She added that "the door will be replaced by the owner, but all of our belongings are our responsibility. Talk about the importance of having renter's insurance and how that covers the contents of your home."
Appreciate the unexpected. You won't be fine without money set aside as a safety net, protecting you and your family from unforeseen circumstances, like a buttinski wild bird. Thankfully, before anything happened, my client and I talked about an emergency fund and worked to set up a plan for her to create her own fund.
The reason. Saving sometimes comes hard when you aren't exactly sure what you're saving for. That's the point: Your emergency fund protects you from what you don't know about ahead of time.
Common incentives for emergency funds are loss of your job, unexpected medical expenses or home repairs, death in your family and sudden auto repairs or replacement. Keep your fund's assets in cash, certificates of deposit, money markets and other short-term instruments that allow you to tap them easily.
The size of your fund depends upon your family or individual situation, including your work security, whether you and your spouse are employed and your ability to find a new job in your field.
Generally, your fund needs to cover six to nine months of your typical necessary expenses. You also want to keep cash at home to cover a couple of weeks' typical expenses in case ATMs or banks close because of a natural disaster or financial crisis.
Insurance. Your emergency fund is like insurance you create for yourself. Think of your monthly contributions to your fund as your premium; you cash in on your coverage if you use your savings to cover unforeseen expenses. That's instead of pulling out a credit card and pushing yourself into debt or dipping into retirement savings.
Depending on your situation, you might need actual insurance too. Drivers must insure cars and homeowners must insure houses. Don't think you're exempt from taking out appropriate insurance if you rent your home, either.
One in four American consumers lack an emergency fund, according to a recent survey. A turkey costing you thousands of dollars in damages and forcing you into debt? If you have trouble finding money for this financial necessity, don't ask what but rather why to save an emergency fund.
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-- Sophia Bera, CFP, is a fee-only financial planner that caters investors in their 20s and 30s. She has been in the financial planning industry since 2007 and is the founder of Gen Y Planning in Minneapolis. She works with clients throughout the U.S. She has been quoted on various websites and publications including Forbes, Business Insider,AOL DailyFinance, Yahoo, Money Magazine, The Fiscal Times, Fox Business and The Huffington Post. Money Under 30 recently named her one of the “Top Financial Advisors for Millennials.”
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