Saving for the Unexpected: A Key to Financial Success

Welcome to America Saves Week! This annual event serves as a reminder and a call to action to commit to saving successfully. One of the key messages for this year is the importance of saving for the unexpected. 

In this video, Alex shares when his family faced an unexpected expense due to water damage in their home. Despite the surprise, having an emergency savings fund in place helped them navigate the situation without negatively impacting their financial well-being. 

Alex's story highlights the importance of having a financial cushion for unforeseen expenses. Whether it's a small repair or a major system replacement, having savings set aside can provide peace of mind and financial security. 

In the world of financial planning, emergency savings is considered a foundational piece of the MoneyNav Hierarchy of Financial Needs. The first step is typically to save $1,000 for emergencies, and then eventually to build that up to 3 to 6 months’ worth of living expenses. 

So, how can you start saving for the unexpected? Alex recommends setting up automatic transfers from your paycheck to a savings account. This way, you don’t have to think about it, and the savings happen consistently. Additionally, he suggests ensuring that your emergency savings are in the right place. With interest rates on the rise, it's important to consider high-yield savings accounts or money market funds to maximize your returns while keeping your money safe and accessible. 

As we celebrate America Saves Week, take a moment to evaluate your savings strategy. Are you prepared for the unexpected? If not, now is the perfect time to start building your emergency fund. Remember, saving for the unexpected is not just about being financially prepared – it's about securing your future and achieving financial success. 

Video Transcript:

Hey, this is Alex Assaley, and it's America Saves Week! This is an annual celebration and a call to action to commit to saving successfully. It's been around since 2007 and today's message is about saving for the unexpected. About three or four weeks ago, I was here in my office, and I was getting texts from my wife, Jamie, about water coming from our second floor down into our kitchen. 

And I said, okay, well, keep me posted on what's going on. By the time I was driving home, she was calling me. And it looks like ours we have a young son. She was giving him a bath and something from the bathtub was leaking down from the bathroom into our kitchen. And she could see it coming down into the ceiling. 

So, I rushed to try to figure out what going on. But the end of the story is that there was something in the bathtub, an extra sort of hose that was leaking down and causing some water damage. We got it quickly, but our ceiling has some water damage in it and needs to be cut out of the drywall and repaired. 

So, it's not the biggest of expenses, but it's a pretty big, unexpected expense. Fortunately, being in the line of work that we're we are and this is where an emergency savings fund having money that we've set aside systematically comes in handy. A lot of times I talk to individuals and investors about the importance of emergency savings, about building up a cushion for that unexpected financial expense for that rainy day. 

I just didn't think the rainy day was going to be inside my kitchen like it was. And even though when you have that unexpected financial expense, sometimes you get frustrated or upset about having to spend that money. Maybe it's $1,000 or a few thousand dollars. Sometimes I talk to individuals who have to replace their entire HVAC system, and it can be $8,000 or $10,000 that they weren't intending to spend. 

But if you have an emergency savings account, even if it doesn't feel great to spend that money, you've got the money set aside, it doesn't negatively impact your financial picture, and that's what it's there for. So, saving for the unexpected is just such a foundational piece to financial success. For those who have seen our MoneyNav Hierarchy of Financial Needs, it is the foundational piece. The first piece is getting $1,000 set aside in emergency savings, and then just a little further up in the hierarchy is building that up to 3 to 6 months’ worth of living expenses. 

So, I can't emphasize enough how important we believe it is. The two takeaways I would encourage you to think about as part of America Saves Week is: 

Number one, how can I set up a way so this is happening automatically? I would recommend either a portion of your paycheck goes directly from your employer into a savings account automatically. If you're able to kind of separate, you know, most of your paycheck, does your checking account for your living expenses, but you have a portion that goes off to your savings account or have a mechanism so that every month or every two weeks, whatever your pay frequency is a day or two after, after you get paid, you have that money automatically transferred from your checking to your savings automatically. 

So, you want to think about it. You don’t have to think about it, maybe I want to go spend that money or, you know, maybe it just disappears during the month somehow in your expenses, it happens automatically. So that's number one. How do you automate saving for the unexpected? Find a way that works for you and your family and then stick to it. 

The second piece is to ensure that these emergency savings or cash savings are in the right place. This asset is located in a place that's right for you. 

And today, because we're in an environment where interest rates have gone up, we did a video of recent money hacks talking about mortgage rates that they're, you know, significantly higher than they were a few years ago. 

So, interest rates have gone up over the last two years. That means when you borrow money, it's more expensive. But it also means when you save money in the right places, you earn more interest. Right now, you can earn somewhere in the mid 4% to even 5% on an annual basis for safe assets, for cash-like assets that could be in a high-yield savings account or a money market fund. 

So, I strongly encourage everybody to make sure things like your emergency savings account are in vehicles where you're getting the optimal interest or yield on that cash savings. So two takeaways: Make sure you've got a way to automate saving for the unexpected, saving for emergencies, and make sure it's located in the right place. A place is going to give you a good return but do it safely so that in the event you need that money, you can pull it out and use it for that rainy day or your kitchen rainy on you. Thanks See you soon!