During an unstable economy, deciding on how to use your finances is very crucial.
You shouldn’t skip building an emergency fund just to max out your retirement plan. (Photo: CNBC)
Crucial Times Means Important Decisions Made
Whether you save for retirement or build up your emergency fund is not an easy task nowadays. People choose short-term financial goals over long-term investments. According to a published post by CNBC, half of the savers choose short-term goals in 2023 which mainly composes of emergency savings.
Catherine Valega, a certified financial planner said that maxing out your 401(k) should be the goal, your emergency savings is also important. Using the “rule of thumb” Leslie Beck decides between retirement and emergency savings.
Being the owner of Compass Wealth Management, she always recommends contributing enough money to your 401(k) to get the full company match. Then divert the funds to your emergency savings after, she said.
You shouldn’t skip building an emergency fund just to max out your retirement plan. (Photo: CNBC)
Is Your Emergency Savings Enough?
For single individuals, Beck suggested managing a year’s worth of expenses to cover necessities such as your home, food, and utilities. For couples, she recommended managing at least six months’ worth of expenses.
If you have access to a home equity line of credit, there may be some flexibility as it may be another source of money for emergency expenses. But there is a need to be careful when it comes to using equity because borrowing after losing your job can put your home at risk.
