Speaker 1: The most watched morning news in central Iowa. This is Iowa’s news leader. This is KCCI8 This Morning Weekends.
Speaker 2: One of the financial goals that makes sense for 2017 is to get that emergency fund in place for those just in case situations. Some estimate that 66 million Americans have no cash reserves in place to handle a 400 dollar emergency situation if it pops up. Kurt Pearson from Compass Financial is here to talk about those goals. Most would agree that this is a worthy goal, something you should try to do, but how do you do that?
Kurt Pearson: I’ve lived with emergency reserves and I’ve lived without emergency reserves. It’s a lot more fun to have some money in the bank that you can tap into. The best way to get started, Eric, is take a look at your cash flow. Say, “Hey, is there an amount that I can carve out every month that I can just move over to kind of a remote savings account, a money market. Something that is very liquid, doesn’t have any fees involved with it, but a place where I can build that cash reserve, that emergency reserve.” I look at those statistics and I feel a little bit of the fear that some of those people must feel by not having, you know, adequate reserves to handle the breaks going out or new tires or whatever.
Speaker 2: The what happens if type of situation.
Kurt Pearson: Right.
Speaker 2: Once you build it up, how do you keep it built up?
Kurt Pearson: This is where it becomes very important to have a level of accountability with some rules on how do we define an emergency? How do we make sure that we have some rules in place so we know what’s allowed to go into that fund and what’s not? Some people confuse an emergency reserve with also saving for a major lifestyle goal. Okay we need a new coach for the living room. Hey, we can go in and tap our emergency reserve. Oh, not so fast because then if life happens, emergency pops up, all of the sudden you ar back where you started. I would separate out those lifestyle goals and those accumulation objectives from the emergency reserve and make sure that you are using two separate accounts.
Speaker 2: Is there a correct number or percentage or how should people figure out how much to have on hand?
Kurt Pearson: For those who have pretty definable income, like no commissions, minimal bonuses, you know, they could maybe err on the side of three months of income. For those who have a volatility to their income stream, we like to see those people closer to maybe six months of income in emergency reserves.
Speaker 2: It’s just plain … Like you say, it not only helps financially, but it helps emotionally to just kind of make you feel like I can handle life.
Kurt Pearson: It does. It also impacts how we look at the insurances too because with many insurances you think about “Well what kind of deductible can we afford to reduce our premium?” Obviously if you have three to six months of reserve readily accessible, it can help you with decisions in other areas of your financial plan, which I think is very important.
Speaker 2: So important for those times just in case. You never know what happens. All right, Kurt Pearson with Compass Financial. If you have any questions, give him a call out in West Des Moines. He’s on Westown Parkway. The number out there is 327-1020 or you can go to cfs00417.hmdev. Thanks for coming in, Kurt.