Money Management

You should not skip having an emergency fund. Keep reading to learn why having one should be a priority for your finances. 

Most experts recommend that you save up three to six months of living expenses in a high-yield savings account. This can sound like a huge financial burden, especially given that the average personal monthly expenses in the U.S. are $3,405. If you spend what most people do, you’d be looking at saving up between $10,215 and $20,430!

If that seems overwhelming to you, you may be wondering if it’s ever OK to skip saving up an emergency fund. The reality, however, is that it’s rarely if ever a good idea not to have money for emergencies. Here’s why.

Emergencies can happen to anyone

The sad reality is, emergencies can happen to anyone at any time. Pew Charitable Trusts found that 60% of households had experienced a shock over the past year with those unexpected expenses having a median cost of $2,000. Both high- and low-income households were found to have experienced surprises that cost them money.

Often, these surprise expenses cannot be put off. For example, data from the Federal Reserve revealed about 20% of adults experienced a major unexpected medical expense over the prior year. When you need medical care, you can’t just wait to get it if you’re ill-prepared for the costs.

Since no one is immune to emergencies, virtually no one should skip having an emergency fund. Everyone needs to be prepared when they face a spot of bad luck.

Not having money for emergencies can have devastating long-term consequences

Another big reason why it’s not OK to skip having an emergency fund is because the consequences of doing so can be dire.

The Pew research found more than half of all households struggled to cover their basic costs after a financial shock, with 50% of survey respondents saying they still hadn’t recovered from the impact even though at least six months had passed since their unexpected expense.

People who had experienced a shock were also more likely to have credit card debt and their median liquid savings was almost $4,000 lower than households who hadn’t. The Federal Reserve found that 15% of adults had lingering medical debt after surprise healthcare costs.

If you do not have money when an inevitable surprise expense arises, you could find yourself charging it. If you have to do that, you’ll have credit card interest and monthly payments to contend with, which make your unexpected expense costlier and leave you with less to live on going forward.

Even retired people need money saved for surprise expenses

Sometimes, people assume that once they’re retired they no longer need an emergency fund since they can’t face a job loss. That’s not the case. Retirees are no more immune to surprise expenses than anyone else, and are often more likely to incur unexpected healthcare bills.

Seniors on a fixed income can’t and shouldn’t just take money out of their brokerage account to pay surprise bills or they could find themselves facing long-term financial shortfalls. So, even those who no longer work need emergency savings.

Here’s when you might be able to skip emergency savings

So, is it ever OK to skip emergency savings? In pretty much all situations, the answer is no — with one limited exception.

If you have an extremely stable income and you have enough money in dedicated savings accounts for the most common expenses you’re likely to incur, then you may not need a big account specifically dedicated to emergencies. For example, you may be able to get away without an emergency fund or with a very small one if you have money set aside for:

Medical expensesHome repairsCar repairs

Even in this case, though, you could still face unexpected costs. For example, you might have to travel to a funeral and need money to pay for it. So, you should still think seriously about whether having at least some emergency savings is right for you.

The bottom line is, as intimidating as it can feel to save for emergencies, you’re far better off making a plan to put money away for unexpected expenses than you are scrambling to cover costs when they come up. So, skip a meal or two out, consider doing some side work, or save windfalls like your tax refund so you can put away some funds in an emergency savings account. You’ll be very glad you did when your surprise expense occurs.

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When you’re starting off as an investor in your 40s, it’s important to make savvy decisions. Read on to see what assets are worth focusing on. 

You’ll often hear that it’s a good idea to start investing as soon as you begin to bring home a steady paycheck. For many people, that happens in their 20s.

But it’s also hard to start investing in your 20s when you have other expenses to deal with and your income may be more entry-level. And to be fair, you actually shouldn’t start investing for the future until you’re in a place where you can cover unplanned expenses in the present. So your best bet when you start a full-time job is to focus on building up an emergency fund, and then focus on investing money for future goals, like retirement.

Meanwhile, it’s easy to see how you might get to a place where you’re first starting to invest in your 40s. The good news is that you may, at that point, still be a good 20 to 25 years away from retirement. That means you can afford to take on some risk in your portfolio. And so you may want to take the approach of loading up on a diverse mix of stocks that can generate strong returns between now and when you’d like to wrap up your career.

It pays to go heavy on stocks

Investing in stocks certainly carries a degree of risk. But investing over a long period of time helps to mitigate that risk, because you’re giving yourself time to ride out stock market downturns.

Over the past 50 years, for example, the stock market has averaged an annual return of 10%, as measured by the performance of the S&P 500 index. But that doesn’t mean that every single year over the past 50 has been a stellar one. There were periods when the stock market lost money — a lot of it. That average annual 10% return accounts for both periods of strong returns and negative ones.

Another way to mitigate the risk of investing heavily in stocks is to diversify your portfolio. You can do this by loading up on stocks across a range of market sectors, or by filling your portfolio with S&P 500 ETFs, or exchange-traded funds. The nice thing about these funds is that they track the broad market, so you’re getting instant diversification without having to do much legwork.

How much wealth can you grow in 20 to 25 years?

If you’re investing for the first time in your 40s, you’re actually in a pretty good spot, because you still have time to build up a lot of wealth for retirement. And if you’re wondering just how much wealth you can expect to accumulate with a stock-heavy portfolio, the answer is that it depends on how much money you’re able to allocate to your IRA or brokerage account each month, and how exactly your portfolio performs.

But let’s say you decide to invest $300 a month over 25 years into S&P 500 ETFs that deliver an average annual 10% return. That will leave you with a portfolio worth $354,000. Make it $500 a month, and you’re looking at a return of $590,000.

When you’re investing at an age that’s close to retirement, you need to be careful about going heavy on stocks since you don’t have much time to ride out periods of turbulence. But when you’re in your 40s, there is time to take on more risk. And by doing so, you might reap some pretty nice rewards.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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2023 is the year of the strike — here’s what striking workers need to know. 

In May, the Writers Guild of America walked out over issues of streaming residuals and the use of artificial intelligence as a replacement for human writers. On Sept. 15, the United Auto Workers union captured headlines by striking over wages and benefits at the three largest domestic auto manufacturers.

This year, workers in the education, public health, transportation industries, and more have picketed and protested for better working conditions. But for those on strike, lost wages and benefits can seriously hamper their personal finances. Read on to learn about how striking workers can bolster their budget during a labor dispute.

Understand your strike fund

Some large labor unions establish strike funds, in recognition of the financial hardship that workers bear during a strike. These funds can help workers who are no longer getting a paycheck to receive at least some income during a strike. Understanding your access to a strike fund is an important first step in managing your finances during a strike.

Some unions, such as the United Auto Workers, offer striking workers a stipend while strike funds last. However, this amount is typically much less than regular wages, and only lasts until the fund is completely exhausted. In the case of UAW, striking workers can expect to receive $500 per week, which the fund can support for about 11 weeks, if all members of the union go on strike.

Other labor organizations, such as the Writers Guild of America West, offer striking workers one-time loans to help cover their expenses. In the case of the WGAW, striking workers can apply for a zero interest loan of up to $7,000. Strike fund rules vary from organization to organization, so it is important to contact a union representative to understand what benefits you are eligible for, and how to claim them.

Part-time options

Striking workers may be eligible for other stop-gap measures during a labor dispute. Part-time work may offer some income, if few other benefits, while strikers are out of work elsewhere. However, it is important that union members understand their options — and don’t step afoul of union rules.

For prolonged strikes, where a strike fund stipend may not be enough or is quickly depleted, workers often need to find some way to fund their expenses. Part-time work is an option for some workers in the middle of drawn-out negotiations. And while workers should not expect the same rate, benefits, or hours offered at their previous employer, even a small amount of earnings can help balance cash flows in the short term.

There is a huge caveat: Many unions and labor organizations restrict members when it comes to finding alternative employment during a strike. For some, members simply cannot work in the same or similar industries, while other unions prohibit outside employment altogether. Failure to abide by these rules can have severe consequences, so be sure to understand your employment options before picking up additional work.

Support services

Striking workers are often in a vulnerable position financially, but there are government and nonprofit programs that can offer some support. Few states offer unemployment benefits to workers, but those who live in New York, New Jersey, and California may be eligible. Meanwhile, workers may have access to Medicaid or discounted coverage on their insurance exchange, depending on state rules.

Additionally, using community services may be a good option for striking workers to temporarily support themselves and their families. Local food banks can relieve striking workers and their families of high grocery bills amid sky-high inflation. Meanwhile, some municipalities offer payment assistance for low-income Americans on costs like electricity and water bills.

Negotiations between labor unions and employers put out-of-work employees in a tight spot financially. To make up for lost income, striking workers should understand their strike fund benefits, their ability to work part time, and the local programs and services that are available to them. Walkouts can be challenging for workers and their families, but asking the right questions can help them weather the storm.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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