By Ronn Yaish, MBA
I have been sharing Money Moves to consider before the end of the year. This being the fifth and final part of this series, in this article I will share Money Moves 19 & 20.
#19 Start Building an Emergency Fund
No one knows what lies ahead. We can come home one day to find out that the furnace broke or that the car needs a new thingamajig, both costing a couple thousand dollars. It’s not so simple for a family to swallow such a sudden expense. Well, what happens if a parent gets laid off or chas v’shalom gets sick and is out of commission for six months? How will the family manage with this sudden emotional, physical and now financial crisis? The answer is that an emergency fund can soften the blow or at least part of the financial burden.
Although setting up an emergency fund makes sense, committing to building an emergency fund seems to be challenging for many. It’s too tempting to have money sitting in an account; it’s hard to have the discipline to leave the money alone. I usually don’t suggest having multiple accounts, but in this case I think an exception can be justified. Consider opening another account within the bank you currently use and label it Emergency Funds (some banks allow you to add names/tags to accounts). If this isn’t enough of a barrier then you may want to open a savings account at a different local bank. This will help keep that money out of sight…and hopefully out of mind, until you need it.
Ok, so you’ve bought into this concept of setting up an Emergency Fund; how much should your goal be and how much money should you start to put away each month? Many financial professionals recommend six to eight months of living expenses. (See YaishFinancial.com/budget to learn simple ways of determining your actual or estimated monthly expenses.)
So, for example, if the Jones family determined their monthly expenses to be $10,000, I am suggesting having an emergency fund goal of $60-$80K. Don’t let this number scare you. Remember, the heading of this section is “Start to Build an Emergency Fund”—you need to start somewhere. Of course, it will not happen overnight and may take months and even years to reach your goal.
Now that you’ve established a goal, next come up with a number that you can afford to “take out” each month from the money coming in: salaries, parent or in-law financial help, commission checks from the telephone MLM you once tried, or any other side business. Start with a percentage or dollar figure ($100 a month or 2%) and have that money go to your saving account by direct deposit. Slowly but surely the money will accumulate. Once it does, it may be helpful to segment the money into two tiers; one being the one-time shot in the arm of $2-$3K to pay for a sudden one-time large expense. The rest of the money should only be designated for major/long-term life need like loss of a job or illness.
Don’t procrastinate because your personal goal seems out of reach today; start today and you’ll be better off than the person who gets analysis paralysis.
#20 Review Beneficiaries:
A 20-minute review once a year of a handful of documents can save you and the people you care about a lot of heartache. When opening up bank, brokerage, annuity contracts, retirement and pension accounts and insurance policies, we often face mounds of paper covered with fine print and dozens of disclosures. We are usually alert when reviewing our name, basic information and summary of terms. By the time we are asked to name beneficiaries our eyes are glazed or we are rushed to get this form done. So we either skip this part of the form or enter a name (to be yotzeh) without giving this important section much thought.
Unfortunately, even when we receive the annual beneficiary notice sent by many institutions, we give the notice a once-over and toss it out. (Good idea to shred forms with personal info.) After some time passes, we go through any number of life events: marriage, child, divorce, death etc. Life events may very often be a cause or a reason to update the list of beneficiaries. The problem is that it is usually an afterthought to make the change, which doesn’t get done or get the attention it deserves, since most of us do not know when our time will come and when the beneficiaries will be exercised. Things get complicated when your loved ones lose out on benefiting from your hard-earned money and carefully saved funds because they weren’t listed, or the wrong people were listed.
To illustrate a point, here is the story of Samuel, who started at his law firm when he was 25 and single so he listed his married sister as the beneficiary to his pension. His sister passed away 5 years later. Over the next 30 years Sam got married and had four children. At age 60 Sam was in a devastating car accident and died. His wife tried to access the pension Sam created 35 years earlier, which was now valued at a little over $2 million. The problem is that the beneficiary was never changed and a beneficiary designation overrides your will. Sam’s sister was still listed as the beneficiary, so the funds went to her widower. Sam’s wife and children lost $2 million and had no recourse.
I suggested taking a few minutes once a year to review each account that has beneficiaries listed and update them accordingly. Either login online to review the current beneficiaries listed the same time every year or wait to receive the end-of-year statements from these institutions with the exception of the insurance policy and go through a simple checklist as you file or review these statements.
By Ronn Yaish, MBA
Ronn Yaish, is Wealth Advisor and CEO of Yaish Financial Services, a New Jersey-based investment and wealth management firm. Ronn earned a Master’s in Education and an MBA in Finance. He has been featured in Forbes, AOL Finance, Credit.com, GoBanking and US News and World Report. His goal is to educate and help clients “keep things simple” when managing their money.