Emergency Savings

In 1785 Robert Burns wrote the poem called "To a Mouse". It contains the line "The best-laid schemes o' mice an' men gang aft agley". "Gang aft agley" means often go wrong or stray off the expected path. When we talk to retirement savers, we find that the savers best laid plans also frequently go astray.

Assuming you have a good budget, spend less than you make, and save in your retirement plan a healthy percentage of your pay, most would assume you are all set. But what happens when you have a wreck, a tree falls on your roof, an appliance breaks, or any of life's thousands of curveballs happen? For many that is the tipping point of financial difficulty.

Some will look to loans, credit cards, or other mechanism for those costs. But what if you had a trick up your sleeve? An emergency account that is only accessed in these events can be a great planning tool. This prevents you from having to borrow and face "time out of the market" consequences that people like us are so frequently bemoaning. With the ability to link banking accounts to high yield savings or brokerage accounts, this is easier than ever to do. Now the key is to assess what is truly an emergency and to leave it alone. Once it is used, it should be built back up over time bracing for the next curveball that will inevitably come your way.