If the forecast predicts rain, you pack an umbrella… just in case. If the car has a flat tire, it’s a good thing you have that spare in the trunk. But what if the unexpected happens? Maybe the car’s engine breaks down, unforeseen medical expenses pop up or you lose your job? Do you have an “emergency” fund that you can tap into?

More than four in 10 Americans couldn’t come up with $2,000 in the event of an emergency, according to a study by The Pew Charitable Trusts. Here are some ways to ensure that you are able to prepare for unexpected expenses:

Experts recommend setting aside at least three to six months worth of living expenses. Since everyone’s situation is different, this is not a ‘one size fit’s all’ rule — you may need more or less than this. A single person on their own, with family to fall back on, may find three months savings is sufficient. If you have a spouse, mortgage, and kids, savings of up to six months, or even more, may be appropriate.

Another consideration, in the case of job loss, is how long you expect it would take to get a new job with similar pay. If your job skills are in high demand, you’d likely need to have less cash saved than someone who would need more time to find a new job.

Think of your emergency fund as a bill. Most of us have housing and other living expenses, retirement contributions, and more, stretching the budget thin. Consider making saving for your emergency fund a regular priority, to get in the habit of regular contributions. Set up automatic deposits into a separate savings account to avoid the temptation of skipping a deposit or tapping into the funds.

Insurance is another way to prepare for financial emergencies. Review your disability insurance. Whether you have it through your workplace or on your own, review your policy to ensure that you have enough to cover expenses in the event that you cannot work for a period due to injury or illness.

Factor in some additional savings to cover the cost of premiums and health care in case you lose your job. You may be eligible for continued coverage via COBRA, but you are responsible for the premium and it is only available for 18 months.

Then, consider your life insurance policy. There are two types of insurance that may work for your specific situation:

• Whole life: Provides life insurance coverage, plus other “living benefits”, including access to the cash value through loans and partial surrenders (subject to policy provisions). These policies could therefore potentially provide access to emergency cash.
• Term life: Typically less expensive than whole life, but term life provides death benefits only.

The bottom line? Everyone needs an emergency fund – no matter your age or income level — so you are prepared for rainy days ahead.

Aldrich Wealth LP helps our clients protect and grow their financial assets for the future, by helping them make smart financial decisions today. If you would like assistance in determining your retirement needs, please contact us or call Aldrich Wealth at 888-299-3102 to speak with a financial advisor.