You have likely experienced at least one — but probably more — unexpected financial emergency: a broken HVAC unit, an auto accident, a medical bill, a busted pipe, a loss of income, or even a damaged or lost cell phone. Whether these expenses are large or small, you were not planning for them, and it often feels as if they hit at the worst times.
One of The 6 Money Decisions™ is Protect. Setting up a dedicated savings account or emergency fund is one vital way to protect yourself and your loved ones. And it is an important first step you can make to start saving.
When you put money away — even a small amount — for sudden expenses, you are better able to recover and get back on track toward reaching your long-term financial goals.
Think of an emergency fund as a shock absorber for those unplanned life events that come flying at you without warning. Having a dedicated savings account for these events will help you avoid taking on more debt than you already have.
In general, an emergency fund is a funded bank account for significant, unexpected expenses, like home-appliance repairs or replacements, major car fixes, unemployment, and unforeseen healthcare bills.
When you don't have savings, a financial surprise — even a minor one — can set you back. Here are six reasons why doctors, like anyone else, need an emergency fund:
Life is full of surprises. Despite having a stable income, doctors can face unexpected expenses such as car fixes, medical bills, or home repairs that may not be covered by insurance.
While doctors may be highly skilled and in demand, they’re not immune to job loss or unexpected changes in employment status. An emergency fund can help tide you over until you find a new job or source of income.
You may experience an injury or illness that prevents you from working. Breaking an arm while skiing, being diagnosed with a chronic disease, straining your back, and other unforeseen injuries or illnesses can make it difficult, if not impossible, to work for a short or long period of time.
Even as a physician or dentist, you may need to rely on an emergency fund to cover your living expenses while you recover.
Doctors may face legal issues or malpractice claims that can be costly to defend. An emergency fund can help you cover legal fees and related expenses.
Having an emergency fund brings peace of mind and reduces financial stress. Knowing you have a financial buffer to handle unexpected situations can alleviate anxiety and allow you to focus on other aspects of your life.
During a recession or economic downturn, doctors may experience a reduction in income or patient volume. An emergency fund can help you weather the storm until conditions improve.
You may be asking yourself, 'Do I really need another account? I have plenty of savings.'
While an emergency fund is generally a good idea for everyone, including doctors, some individuals may have significant financial resources or job security that makes an emergency fund less necessary.
That said, it is still generally recommended to have some level of emergency savings, even if it is not as large as the standard three to six months of living expenses. Additionally, doctors, like anyone else, may have unique circumstances or financial goals that influence their need for an emergency fund.
Ultimately, the decision to have an emergency fund should be based on your personal financial situation and priorities.
The "right" amount you need in your emergency fund is specific to your situation. Your saving goal depends both on your income and expenses.
Ideally, it is best to have three to six months' worth of living expenses saved. Essential monthly expenses generally include housing, utilities, transportation, food, and credit card and loan payments. Saving this money isn't always an easy feat and requires some effort to achieve, but it is a key part of any sound financial plan.
The first step is determining how much you and your family spend each month. When you know your total monthly expenses, multiply that amount by three. Saving enough to reach that number will be your initial goal.
An emergency fund is a key component of any solid financial plan but does take some effort to achieve.
You may want to view your emergency fund like an insurance policy. It can provide some protection when you most need it. Use it wisely once you have it; it’s not a piggy bank. You really shouldn't use it for incidental expenses. In addition, as your salary rises, be sure to up the amount to reflect your new situation.
Be sure only to use the fund in the event of an emergency and spend it carefully only on what you need. Remember, once you spend the money, replacing it can take longer than you anticipate.
If you aren't sure how to get started creating your own emergency fund, don't hesitate to get in touch with our team of financial planners. They can help you determine the total you need to save, what that equates to each month, and the best place to keep it.
Remember, having an emergency fund can give you a better shot at weathering any crisis without running up a credit card balance or taking out a personal loan.
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The team at Spaugh Dameron Tenny works to present timely educational content that benefits doctors and their unique financial situations.
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