Don’t Break the Bank

As crazy as it may sound, the holidays are upon us. Walkthrough any store and you’ll see the beginnings of Christmas items making their appearance. Once the last little goblin has taken the remainder of your Halloween candy, Thanksgiving will seemingly be skipped and we will be facing the full Christmas onslaught.

This brings all the expenses associated with it – gifts, decorations, parties and special dinners to name a few. Combine that with your normal day-to-day household expenses and it’s easy to get off track financially during the next few months.

While trying to prepare for the expense of the holidays – it is important to keep your emergency fund in mind. I’ve mentioned this in previous columns but it warrants some more attention. What is a reasonable amount? What should you be striving for? The guidelines set forth by the Certified Financial Planner Board of Standards are relatively straight forward in this regard.

Three months of expenses should be set aside if:

• You are a single wage earner and have a second source of sizeable income (trust fund income, alimony, wisely invested inherited money, passive income such as rental property income).
• You are married and both spouses are employed outside the home; or
• You are married and one spouse is employed outside the home but a second source of sizeable income is available.

Six months of expenses should be set aside if:

• You are single wage earner; or
• You are married but only one spouse is employed outside the home.

These funds should be liquid – assets that can be accessed without the risk of loss of principal. This includes checking/savings accounts, money market deposit accounts and certificates of deposits (CDs) that have less than one year to maturity (ideally less than six months).

The goal here is to weather an unexpected storm that throws your “norm” into chaos – the loss of a job, an unexpected medical emergency or an emergency home repair. It is important to remember, lest we be lulled into a false sense of security, that even with health insurance, a major medical issue will likely seriously impact your finances. Many people in the private sector have a high deductible on their health insurance so as to keep their premiums down. Meeting that deductible after multiple hospital stays is not an expense that most have budgeted for.

A solid emergency fund will help you through the above curveballs without incurring high-interest debt. Then, once you are through the storm, you begin building it up again.

So, when thinking about the impending holidays, if you are tempted to dip into that fund to Griswold up the house or throw the holiday bash of all bashes, remember that life happens – to all of us, all of the time. It does not discriminate. The next unexpected event is right around the corner.

It’s better to stay within your means this holiday season and keep that fund intact. There are over two months left to still set aside some cash each pay period for the silly season. And despite what the endless advertisements and store displays would have you believe, it’s about time spent with your loved ones, not money spent on them.

And cookies. It’s definitely about cookies too. If you don’t have an Aunt Rose that delivers a big plate each year, you need to budget for those.

Live well, live with love. Until next time.

Original content provided by Gregory Mattacola, Esq., Financial Advisor at Strategic Financial Services. Content is provided for educational purposes only and should not be used as the basis upon which to make investment or financial decisions.