Preparing for a Financial Emergency * ardelles.com

5 tips for Preparing for a Financial Emergency

Preparing for a Financial Emergency. The new year provides an opportunity to re-evaluate different aspects of your life, and that includes your budget and savings habits. Planning for emergencies by building – or rebuilding if the COVID-19 pandemic required making a withdrawal – a savings account to withstand the unforeseen can increase confidence in your overall financial health and reduce the worry that a significant life event will negatively impact your finances. (Family Features)

“Our research shows having emergency savings is the foundation for long-term financial health,” said Chandni Ohri, program lead in savings and financial health with BlackRock’s Emergency Savings Initiative. “The start of a new year is a good time to make a savings plan, which can consist of putting a little bit of money away regularly.”

Even before the pandemic began, 4 out of 10 Americans had a hard time finding even $400 to cover an emergency, according to a report from the United States Federal Reserve. However, if you don’t think you have money to save, consider the majority of people who were able to save for an emergency for the first time in 2020 earned less than $60,000, according to research from BlackRock’s Emergency Savings Initiative, a group of nonprofit experts, corporate partners, and providers. Changes in spending due to the pandemic plus government stimulus packages helped many individuals create much-needed cash buffers.

Consider these tips to build your emergency savings account and create a buffer of cash for when an emergency strikes.

Start a Savings Habit

Preparing for a Financial Emergency Tip #1. While it’s less important to have a specific dollar amount in mind, getting into the habit of putting some money in savings with each paycheck can help protect you should an emergency arise. While one good rule of thumb is to set aside enough to cover roughly six weeks of living expenses – housing, food, transportation – take a look at what it would cost to cover unexpected issues with your car, a trip to the hospital, a leak in your home or the replacement of a major appliance and start there.

Even a small amount, such as $50 in your savings account when it’s the day before payday and you’re running on fumes, can save you from an overdraft fee, having to resort to using a credit card, borrowing from a loved one or taking out a loan. However, research from the AARP Public Policy Institute found having a cash buffer of approximately $2,500 can help prevent financial hardship over the longer term. If you lose your job, for example, your emergency account could help pay for necessities while you find a new position or the funds could supplement any unemployment benefits you may receive.

Automate Your Savings

Preparing for a Financial Emergency Tip #2. Because an emergency can strike at any time, it’s important to have easy access to your funds. However, the account should also be separate from your checking account so you’re not tempted to dip into your reserves. Pick a free savings account with no minimum balance requirements and link it to your everyday account to quickly move money over if you need it.

Look for ways you can automatically save such as enabling roundups from your checking account to be transferred to your savings with each purchase or having your employer split your paycheck and automatically deposit a portion into savings each payday.

If you’re planning to stash funds away for months or years that can serve as both an emergency fund and long-term savings, consider a high-yield savings account.

Look for Ways to Cut Back

Preparing for a Financial Emergency Tip #3. While you may have already made changes to your spending habits amid the pandemic, periodically shopping for competitive rates of recurring bills, such as cable and internet, cell phone insurance policies, and other utilities can be a simple way to save some money each month. Start by asking your current providers about any special rates and promotions that may be available to loyal customers then check with alternative providers to see if they can provide the same or better offerings at a reduced cost. Sometimes returning to your current provider with a more competitive rate from elsewhere can be an extra incentive to work out a deal to keep a longtime customer.

Also, look at any subscription services you use, or potentially don’t but still pay for, and see if they offer a cheaper plan that still meets your needs or if you’re able to cancel subscriptions you no longer use frequently. Other expenses such as dining out or buying new clothing and accessories could also be scaled back if you find you’re splurging too much. Avoid completely cutting spending on leisure activities from your budget but look for reasonable tweaks that can allow you to set more money aside for unforeseen expenses.

Take Advantage of One-Time Opportunities to Save

Preparing for a Financial Emergency Tip #4. Assuming you expect to receive a tax refund, this provides an easy way to boost your emergency fund if circumstances allow you to save all or a portion of the return. If you’re able, consider having your refund directly deposited in your emergency account. The same strategies can be applied to any government aid checks you may receive, such as the second round of stimulus money that could be distributed to eligible citizens in 2021 to help reinvigorate the economy amid the COVID-19 pandemic.

There may also be other times throughout the year when you receive one or more cash gifts, like your birthday or holidays, that can help provide a nice cushion to your emergency fund if you can avoid the temptation to spend it.

Replenish What You Use

Preparing for a Financial Emergency Tip #5. Remember to review and adjust your savings plan as needed, whether you’re able to contribute over a longer period of time without dipping into the account or if an expensive life event pops up that requires using all or a portion of the funds.

Should you need to dip into the savings, do your best to make replenishing the account to a level you’re comfortable with a primary goal in case any additional unexpected expenses arise. Alternatively, if your saving is going well, consider increasing the amount you’re saving each paycheck so you’re better protected against any major life changes or able to finance a large-scale purchase down the road.

Find more information and tips for building your savings at savingsproject.org.

Photos courtesy of Getty Images

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Financial Health Network

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Read Time:4 Minute6 common tax myths, debunked6 common tax myths debunkedAs you look ahead to doing your taxes this year, there are a number of myths you may think are true for the 2020 tax year. If so, you are not alone — tax myths and misinformation are more common than you may think. And unfortunately, these myths can be costly if they lead to mistakes on your taxes. (BPT)Here are the top six tax myths this year:Myth 1: Anyone working at home can deduct their home office expensesJust because you’re working from home — as many taxpayers are now — doesn’t mean you can deduct the cost and expenses of the space used for your home office. In fact, this deduction only applies to people who are self-employed. But, some taxpayers may also be eligible if they are employed by someone else but use the space to engage in self-employment activities.Myth 2: You can claim dependent exemptions for your childrenIn the past, dependent exemptions allowed taxpayers to claim deductions for dependents (such as children) on their federal tax returns. Unfortunately, dependent exemptions are no longer a thing. However, dependents are still very important for tax benefit purposes, including increased credits, child tax credits, filings status determination, and many more benefits. Just not a simple tax deduction as in the past.Myth 3: You must itemize to deduct charitable donations This was the rule in prior years, but it changed for the 2020 tax year — you don’t have to itemize deductions to take a charitable donation deduction this year. Under the CARES Act, you can deduct up to $300 in charitable donations made to IRS-approved organizations when you take the standard deduction. But if you do itemize, you still get to claim the deduction anyway.Myth 4: You can file taxes on a postcardThis is not true. When the tax regulations were revised, you may have read in the press about a new “postcard” tax return, but it was never true. The “form” that was circulated to be like a “postcard” is in fact two pages long, plus three schedules!Myth 5: You’ve already paid taxes on your retirement distributionJust because you had taxes withheld on your retirement or IRA distributions doesn’t mean you’ve fully paid taxes on it. This is a very common misconception. The income and withholding are still reported on your tax return, along with any other sources of income you may have, including Social Security benefits if you receive them. It’s important to gather all that information together to discuss with your tax professional whether you may still have a tax obligation for 2020.Myth 6: There’s no longer a tax penalty for not having healthcare coverageWhile the tax law went into effect in 2020 to remove the federal penalty for not having health insurance as required under the Affordable Care Act, you still have a responsibility to reconcile your advanced premium tax credit when you have insurance through your state’s Health Insurance Marketplace. Plus, some states do charge penalties if you don’t have health insurance. If you get healthcare through a marketplace, you still may get credits and must report it on your taxes. Ask your tax professional if you need help understanding your healthcare coverage as it relates to your taxes.“If you have questions or concerns about your taxes this year, don’t wait until the last minute to get professional help,” advises Mark Steber, Chief Tax Information Officer at Jackson Hewitt Tax Services. “Making errors on your taxes can cost you both time and money — not to mention stress and anxiety! Work with a tax pro who is up-to-date on all the latest changes and can advise you on your situation.”Health and safety protocols at Jackson HewittIf you have concerns about health and safety when making an appointment with a tax professional, know that Jackson Hewitt requires all staff to comply with local, state, and federal laws and guidelines regarding face coverings and social distancing. Clients meeting with Tax Pros in-person can expect at least six feet of distance between themselves and employees, partitions between staff and clients, plus cleaning and disinfecting throughout the day.Clients can also limit their time and contact by making an appointment ahead of time and uploading documents to their MyJH account or the company’s document Drop-Off prior to the appointment.A completely contactless option is to file virtually using Jackson Hewitt Online or accessing Tax Pro from Home options. These are online, personalized tax services through which a dedicated Tax Pro will review tax documents that you upload, answer your tax-related questions and file your tax return without you having to leave your home.Learn more about getting your taxes completed this year at JacksonHewitt.com.Preparing for a Financial Emergency

Preparing for a Financial Emergency

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Preparing for a Financial Emergency