Entrepreneurs, small business owners, and business-minded individuals like you have a lot going on in their professional lives. Your schedule is tight when you have an enterprise to run, so you don’t always have the luxury of time to explore financial topics for as long as you would like.
You need your financial literacy to come at you fast and hard, just like your career. That’s why this article won’t mince words. Let’s get straight to the point; here are three common questions about your emergency fund and their answers.
Question #1: Why Have One?
Like many business owners, you understand the meaning of pulling yourself up by your bootstraps. As your own boss, you are responsible for balancing budgets and growing your bottom line.
The emergency fund is a way you can remain independent, even when you encounter some challenging financial situations. This savings account contains cash on reserve for the unexpected that you don’t think to include in your personal budget. You can tap into it any time you have to take your car into the garage ahead of schedule or see a dentist about a cracked tooth.
Question #2: How Big Should it Be?
Unexpected car repairs, dental surgery, and other surprise expenses are hard to estimate. By virtue of being unexpected, you can’t predict when you’ll face them or how much they’ll cost if you do.
That’s why the general rule of thumb for emergency funds is a range, rather than a specific number. You should aim to save three to six months of living expenses if you lead a typical lifestyle.
Question #3: What if it Fails?
An emergency fund is meant to be used, so there could come a time when you drain your savings only to have to call a roofer about a leak in your attic. Or maybe that leak happens before you can even start saving.
A low balance in your emergency fund doesn’t mean you can’t get urgent repairs done on your house or should ignore other unexpected expenses. When you’re short on cash, you can check out a company like MoneyKey to learn more about your online loan options. You might qualify for an installment loan or line of credit, either of which may fill in for lackluster savings.
Online installment loans and lines of credit aren’t cash advances, so you can pay them off in chunks spread out over time. These flexible terms may be easier to juggle, even while you rebuild your emergency fund.
Question #4: Where Should You Put It?
Keeping your emergency fund separate from your checking account is an easy way to safeguard this cash. You’re less likely to dip into savings and use them on the non-essentials this way. But can any account work? To get the most support from financial institutions, you should consider opening a high-yield savings account.
A high-yield savings account earns more interest on the dollar than other basic savings accounts. But unlike high-earning investments, these HYSAs are still accessible with few (if any) restrictions on withdrawals or balances.
Questions #5: Is Your Money Safe?
As long as you keep your account with an FDIC-insured financial institution, your money will be safe — even in the event your bank fails. FDIC (Federal Deposit Insurance Corporation) insurance protects your balance up to a $250,000 limit.
If you opt for an online savings account, you should also look for certain cybersecurity features to ensure the financial institution handles your personal information with care. They should have the latest encryptions and follow best practices (which may include SIEM support) to prevent data breaches.