Tyler Conley, MBA, CFP®, CEPA®, Financial Planner
March 24, 2020
“Save money and money will save you.”
This famous Jamaican proverb is a philosophy which is built into each and every comprehensive plan implemented at Syverson Strege. This philosophy, though, isn’t unique to Syverson Strege clients or even Jamaicans, but rather it is a fundamental part of all well-developed financial plans.
For example, in Dave Ramsey’s “Financial Peace University,” he embraces the seven baby steps to financial freedom. The first baby step is for participants to start an emergency fund of $1,000. This philosophy can also be seen in the Certified Financial Planner Board of Standards teachings where they state households need a minimum of three to six months of expenses saved. In clients’ annual planning session meetings, these liquid savings are reviewed, but as a refresher, we will review some of the key takeaway points.
The three to six months of saved expenses should not be hidden in the freezer, buried in the back yard, or “safely” stored under your bed. These savings can exist in multiple avenues including checking accounts, savings accounts, money markets, yield accounts, short term bond investments, CDs, and even Roth IRAs. The reason we encourage these investment tools over cleverly hidden hiding places is so that these funds work for you while still maintaining liquidity. According to TheBalance.com the inflation rate for 2019 was 2.3%, thus if you hid $1,000 in cash away, your purchasing power decreased by $20.30. Alternatively, if you utilized one of the above listed investment vehicles/tools, you may have not only stopped the erosion of purchasing power by inflation, but may have actually increased your savings’ purchasing power.
A question we receive often during this savings discussion is, “Which investment tool should a person start with if just beginning?” Unfortunately, there is not a blanket statement which is applicable to every beginning saver. However, this is where a financial planner and associate planner can prove their worth in helping you find a customized solution best fit to your scenario.
As an example, for individuals who are just starting out and have goals of saving for retirement whilst growing this emergency savings account, funding it can prove to be rather challenging. A possible solution that satisfies both of these goals could be funding their annual Roth IRA. This savings/investments strategy is a good fit for individuals starting out, as it allows individuals to withdraw the original contribution amount penalty free at any time for any reason. Although we do not encourage individuals to tap into this retirement vehicle unless it’s an emergency, it is a very good safety net to have. If you are fortunate enough to never need these funds, you may have a healthy after-tax retirement account accumulated.
For many individuals, having this money out of sight has proved to be the most effective way of saving/preserving the account. Having this arm’s length distance from the funds allows clients to avoid costly mistakes which impulse purchases tend to produce. A solution which Syverson Strege offers to assist in this savings process, is providing Syverson Strege yield models which incorporate three different risk tolerance levels. These models are utilized to make sure your money does not experience the volatility that would be associated with most investments, while at the same time making sure the monies are appreciating in value for you. The models are invested in very liquid assets, allowing for funds to be transferred into your bank account within 2-3 business days. These accounts can be funded with a lump-sum deposit or with reoccurring payments. In the end, our goal at Syverson Strege is to be your long-term partner in working towards your financial goals.
Unfortunately, bad things happen to good people. This list of painful events can include, but is not limited to, car accidents, HVAC systems dying in the dead of winter, loss of income, pipes bursting, or even a global pandemic. With the necessary savings and a plan in place, these potentially catastrophic events can be reduced to inconveniences. So please breathe a sigh of relief the next time you hear your favorite planner preaching about the importance of having savings equal to three to six months of expenses. They are giving you helpful advice and as with your savings, you may have the opportunity to be ready for whatever life throws at you!