(Source: By Donna Gehrke-White, Sun Sentinel, Fort Lauderdale, Fla. (MCT) – It seems like a waste of your hard-earned money to put it in an emergency fund when all you have to do is pull out your credit card to pay for the unexpected.
But financial planners say there are five vital reasons why you should continue to keep a special fund — even if you have to stash at least six months of expenses in savings accounts that pay almost zero in interest:
You might lose your job. The South Florida economy has slowed down recently with the national economy losing steam from April to June, the U.S. Bureau of Economic Analysis reported Friday. Putting expenses on your credit card if you are laid off can be disastrous. You also have to consider whether you are in a unique occupation with a narrow field of employment, said Patrick Buchanan, president of Private Wealth Management in Lake Mary who has South Florida clients. That might mean you spend more time looking for work — and need more in your emergency fund.
You might become injured or sick. Are you adequately insured to cover your loss of income? Buchanan asks. Even if you think you are, you might need your emergency fund to pay for unexpected expenses while you recuperate.
The emergency fund helps diversify your assets. It’s important to have a variety of savings and investments because it protects you from sudden losses, say in the stock market, said Matt Saneholtz, a Plantation personal planner who is president of the Financial Planning Association of Greater Fort Lauderdale.
Cash is accepted everywhere. During an emergency you might find yourself in a position when you quickly need to pay for something. Credit cards aren’t accepted everywhere and you wouldn’t want to sell stocks or bonds at a loss to cover unexpected expenses. “There is no substitute for liquidity and marketability in the face of a financial crisis,” Buchanan said.
You sleep better. There’s something to be said for peace of mind: You know you have the money in case something happens. Many South Floridians are big spenders and need that security of an emergency fund, said Baton Raton financial planner Mari Adam.
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©2012 the Sun Sentinel (Fort Lauderdale, Fla.)
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