It’s become a standard rule of thumb that every household should have six months of non-discretionary monthly expenses stashed away in savings somewhere.
A Federal Reserve report in 2019, pre-pandemic, reported that the average household has about $5,300 spread across all bank accounts. That might not enough for everyone.
Especially the self-employed, says Avidian Wealth Solutions President Michael Smith. The irregularity of income and the inability to qualify for unemployment insurance can put someone in dire straits quickly, as some discovered when Covid hit.
“I think now with the pandemic people have gotten a real taste of what an emergency is, and now I think the urgency of putting money into an emergency fund has changed because of the pandemic,” he tells KTRH News.
The biggest mistake one can make, Smith suggests, is dipping into retirement savings. “As you are saving toward retirement and investing, especially planning an emergency fund, never plan your IRA or 401(k) to be the emergency fund. That is you’re retirement plan.”
And if self-employed, rather than the six-month savings model, Smith recommends 12-months.
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