Quiz: Financial Emergencies – What should you do?

1. TRUE or FALSE – You should only set aside enough money in an emergency savings fund to cover one month’s worth of living expenses.

2. TRUE or FALSE – You should take a loan or hardship withdrawal from your retirement savings plan in the event of a financial emergency.

3. TRUE or FALSE – You should invest your emergency savings in stocks and bonds.

4. TRUE or FALSE – You should set up automatic contributions to an emergency savings fund.

5. TRUE or FALSE – You should use your emergency savings to put an addition on your house.Financial Quiz


1. False. Many financial advisers recommend setting aside six months’ worth of living expenses for an emergency. To calculate the amount you need to save, add up your mandatory monthly expenses (mortgage or rent, utilities, health care, food) and your discretionary monthly expenses (dining out, travel, entertainment). Focus on saving enough to cover your mandatory expenses first, and then move onto your discretionary expenses.

2. False. Saving for an emergency is just as important as saving for retirement, but the two accounts are separate for a reason; retirement savings should never be used for anything other than retirement income. Loans and hardship withdrawals reduce the amount of money growing in your account, prohibit you from contributing to your account for a period of time and, in some cases, result in tax penalties.

3. False. To help ensure that your money is available when you need it, deposit your emergency savings in a low risk money market fund or bank savings account. These investment vehicles provide easy access to cash when you need it, and protect your savings from the possibility of market declines associated with higher-risk investment options.

4. True. If you don’t already have an emergency savings account, you should be able to easily open a savings account at your bank. Once the account is open, you can set up automatic deposits to simplify the contribution process and help you save consistently.

5. False. Emergency savings funds exist for the sole purpose of helping you make ends meet if there’s a significant change to your income — for example, you lose your job or can’t work due to an injury — and covering unanticipated costs that you haven’t budgeted for, such as a major car repair.

BasicInvesting2015_400Join us for our monthly Basic Investing and Savings workshop to learn about:

  • How to set financial goals
  • The basics of investments and savings options
  • Allocating investments to help meet your needs and your goals

Call 385-4663 to register for the next available workshop!