The Importance of Having an Emergency Fund
If the government shutdown proved anything, it’s how many Americans are living paycheck to paycheck. Are you financially ready in the event of a job loss, extended illness or some other emergency? EisnerAmper Private Business Services advisor Tim Schuster offers some helpful tips on creating (and sustaining) a fund that can help you sleep a little better at night should a crisis arise.
Dave Plaskow: Hello and welcome to The Bottom Line. This podcast examines the everyday business and finance issues faced by closely held businesses. We hope to provide you with news you can use in what we like to think of as a jargon-free zone. I'm your host, Dave Plaskow, and with us, as always, is Tim Schuster, Manager in EisnerAmper’s Private Business Services Group. Today we'll discuss with Tim how to approach creating a fund for emergencies. Tim. Hello.
Tim Schuster:Dave. It's a pleasure my friend.
DP: We're talking on a Friday afternoon. The news just came through that they're pretty close to ending the government shutdown. It looks like at least a temporarily moratorium. Great news for a lot of people. But during the shutdown, one of the things that really struck me is the number of people and families who weren't prepared for something like this. I heard in the media a lot of stories, a lot of people sharing their stories about how they were out of money or that they only had enough money to last for one or two weeks. People were literally driving to work and running out of gas. And I read a number that approximately one-third of Americans have no fund to cover emergencies.
TS: It’s actually really amazing. You're 100-percent correct. This is, honestly, no doubt a difficult situation for many people. But this is also something that can be corrected, where an emergency fund can really help you sleep at night.
DP:And you don't need a magical windfall. You don't have to hit the lottery. And you don’t need to create a $50,000 emergency fund overnight.
TS:Exactly. I mean, don't get me wrong, I'd love to personally hit the lottery. But there are goals you should have in mind; it could be milestones. It might be $5,000; it maybe $10,000; it may be $50,000. Whatever is good for you personally. The key is to regularly pay a modest amount into this fund each week, and it can be as little as, honestly, a few bucks a day. You see those commercials all the time on TV “for just 25 cents a day ...”
DP:And what are some ways to enhance this, to make it more palatable?
TS:One thing that you can do is just have money automatically deducted from your paycheck. That's easiest way because then you're not missing it. If you happen to pick up odd jobs where maybe you earn a couple hundred bucks here, a few hundred bucks there, you can start putting a little bit of way into this fund. Just put it into a savings account. Don't put in checking. Most people tend to put it there. Just put it in your savings account where it's not being seen, and really you're not going to feel the pain of losing this money because you're taking a little off the top every single time.
DP:What else can you do?
TS:If you happen to get any sort of windfall: a raise, a tax refund— right now we're in the middle of tax season where people are seeing refunds starting to come through—then deposit a portion of that into your emergency fund. You didn't have it initially, so it's found money. You can still treat yourself, and you may not feel as guilty if at least you're saving some of it for a bad day.
DP:That's a good way to balance it. Now I hear some experts suggest that your emergency fund should be three to six months’ worth of expenses. Really?
TS:That's a common target. But keep this in mind, when we say expenses we really mean necessities like utilities, medical expenses—not one of those $6 lattes every morning. Again, you don't need to amass this emergency fund overnight. The key is not to wait until you get sick or potentially lose your job or your car dies to figure out how to cover this. Start saving for this now; take the time and do it.
DP:Those are some good dos. Do you have any don'ts for us?
TS:Yes, absolutely. Do not have a loose definition of what an emergency is. I would argue that the using this money for a vacation, for instance, is hardly an emergency. That's a completely separate fund that actually you can have yourself. You can have multiple funds. You can have an emergency, a vacation, and a daily use fund. Look, it definitely involves foregoing some sort of immediate gratification. It's not a matter of if an emergency will happen, but when. And you’ll be so glad you have that fund.
DP:Now what about for those people who currently don't have an emergency fund, or they've just started one, and an emergency strikes. Any options there?
TS:Yes. So recently, especially with the shutdown, you have been seeing a lot of credit card companies that are offering incentives to lower the interest rates, not necessarily forego any debts that you may have, but help with the burden. If you have these issues, you want to be forthright with any lenders that you have. The other option actually is you can actually take out some money as well. But you want to be forthright with credit card companies and whoever you potentially owe money to. Because if you do that sooner rather than later, they can work out deals with you in order to help out on any sort of payments that you have to make.
DP:Well, that's good to know. Now, one of your New Jersey Historical Society of fun facts gets to the issue of the government shutdown. Tell us about it.
TS:It's a little personal for myself. One of the things I love to partake in his craft beers. Well, during the shutdown, which started way back in December, all of these breweries that wanted to release new beers actually weren't able to because the ATF has not been in service in order to review the labels, which they need to do in order for a beer to be distributed. So any new beers that a lot of our craft breweries in New Jersey were trying to release couldn't because the ATF wasn't in session in order for them to actually approve those labels.
DP:Thanks again, Tim. And thank you for listening to The Bottom Line as part of the EisnerAmper podcast series. If you have any questions or there's a topic you'd like us to cover, email us at firstname.lastname@example.org. And visit EisnerAmper.com for more information on this and a host of other topics. And join us for our next EisnerAmper podcast where we get down to business.
Tim Schuster discusses executive compensation, option grants, deferred compensation, fringe benefits and more. He also examines what to be aware of when preparing an executive compensation package.
Lindsey Gross of EisnerAmper’s Outsourced Finance and Accounting Group joins Tim Schuster from Private Business Services to discuss the differences between these two areas, client case studies that demonstrate those differences, and which types of client could benefit from each.
The Bottom Line looks at how you can use social media to grow your business and examine the different communication platforms available including Facebook, Twitter and LinkedIn. You really need to develop website content and push it on social media platforms.
Tim Schuster, a manager in EisnerAmper's Private Business Services Group, discusses new NJ legislative initiatives happening in Trenton that you should be aware of. The first is the New Jersey Family Leave Act and the second is the increase in NJ's minimum wage.
In this episode of The Bottom Line, EisnerAmper Private Business Manager Tim Schuster discusses developing a quarterly planning calendar, including budget, tax planning and speaking with your trusted advisor. Review these concepts monthly from an accounting perspective.
Tim Schuster from EisnerAmper’s Private Business Services Group talks about the family issues and financial burdens for members of the sandwich generation - those individuals who are responsible for raising their children as well as caring for aging parents.
As New Jersey initiates paid employee sick leave The Bottom Line examines the requirements for business owners. Some reasons for which employees can use sick leave include an employee's own personal medical treatment or legal services, or that of a family member.
EisnerAmper’s Private Business Services Group Manager discusses the current unemployment rate and the booming economy despite current trade tariffs. To help attract employees, businesses are offering incentives such as assisting with student loans to attract millennials.
EisnerAmper’s Private Business Services Group partner discusses estate planning and the need to have a will - from an online provider or an estate planning professional - to help your heirs understand your estate asset wishes and the Tax Cuts and Jobs Act estate tax thresholds.
The Bottom Line looks at some of the common IRS scams out there and what you should do if you fall victim to one of these scammers, including email and personal data hacks, ID theft and fraudulent returns. Contact your accountant if you think you’re a victim of a scam
The landmark Supreme Court decision in the Wayfair case on e-commerce taxation allows states to collect sales tax on e-commerce companies, even without brick and mortar locations in that state, affecting all e-commerce companies such as Amazon. Accountant guidance is suggested.
This podcast discusses the New Jersey Department of Labor and the employee or independent contractor (freelance work) classification under new Tax Cuts. A DOL audit might look at your Facebook and LinkedIn, and can also change your employee or contractor classification.
This episode of The Bottom Line looks at New Jersey Governor Phil Murphy’s inaugural NJ budget. The discussion includes the Governor's proposed New Jersey's state tax on Uber and Airbnb, addressing tax loopholes for hedge funds and New Jersey tax's effect on the gig economy.
In this episode of The Bottom Line, Tim Schuster discusses some of the individual taxation questions bubbling up from clients in the wake of tax reform including adjusted gross income changes, private business taxation, QBI, and the importance of talking with your tax advisor.
This episode of “The Bottom Line” discusses new tax reform changes including C corp and individual taxpayer changes, NOLs, double taxation and bonus depreciation. Tim Schuster came up with a top seven list of business tax reform questions he's been receiving from clients.
In this episode of “The Bottom Line,” Tim Schuster talks about the benefits of retirement savings plans for small businesses, including SEP IRAs, SIMPLE IRAs, and Solo 401(k) plans, as well as eligibility and contribution limits set for small business contributions.
Tim Schuster discusses how starting a college savings account – sooner rather than later – can help alleviate sticker shock for your child’s college education. He talks about the different state-sponsored 529 plans, what you can use the money for, the tax benefits and more.
EisnerAmper’s examines the differences between different Health Spending Accounts including HSAs, HRAs and FSAs. It is recommended you speak with your tax advisor about qualified medical expenses and pending tax reform's affect on health spending accounts.
EisnerAmper's Tim Schuster looks at several categories of SBA loans for working capital. He covers the loan approval process, SBA 504, real estate exclusions and how business advisors can help you make the most of the Small Business Administration (SBA) loan process.
EisnerAmper’s Tim Schuster tackles the issue of succession planning - Companies should have something written down for succession planning purposes as well as take into consideration estate planning, wealth management and valuation when creating their transition plan.
EisnerAmper's private business manager, Tim Schuster discusses the need for proactive disaster planning for private businesses, as well as business interruption insurance in the event that your disaster planning fails. FEMA offers online disaster planning recovery courses.
In this episode, Our private business services advisor Tim breaks down what a closely held business is, the different business formats such as LLC LLP and S Corp, and how this impacts the role of business advisors so your accountant, banker and lawyer will all be on the same page.