Life is full of the unexpected. While we can plan for many of life’s events, things always occur that are out of our control. Any of us can be one car accident away from a large repair bill or being physically unable to work. Therefore, emergency savings are critical and essential for long-term financial health. We all need a cushion of cash reserves to cover the unexpected.

Financial Emergencies Occur Often

The laundry list of sudden expenses that might come up in life is endless. Many of the biggest financial emergencies involve car repairs, medical expenses, home maintenance, child care and higher-than-expected tax bills. Do you have a pet? Veterinarians know better than anyone how much animal emergencies can cost.

On average, you will face an emergency expense every three months, costing about $1,700. Here’s what’s interesting: If you earn over $100,000 a year, you are 34% more likely to incur such expenses than your lower-income counterparts. The reason is that having more things means more things can break.

The Impact of Zero

Statistics show that 37% of Americans cannot afford an unexpected expense of over $400. Even worse, 27% have no emergency savings. Also, only 28% have enough emergency savings to cover more than six months of expenses.

Without an emergency fund, you must find another way to cover those costs. Perhaps you can borrow from friends and relatives. Or you might sell a long-term investment at a lousy time, forcing you to pay penalties or lock in losses. But more commonly, this is where credit card debt comes into play.

Half of Americans with a credit card carry a balance — an average of $7,200 at an interest rate of 23%. Interest on credit card debt can quickly become financially crippling. Avoiding this trap is one of the strongest arguments for having an emergency fund.

Lost in a Sea of Priorities

Prioritizing an emergency fund can be challenging. If you are a young veterinarian, you might be navigating a mountain of student loan debt and goals you want to achieve personally and professionally over the short, mid and long term. Perhaps you want to save for a house, kids, owning a practice, travel and retirement.

If you already own a practice, you are responsible for your staff’s well-being and the business’s day-to-day operations and finances. But you also have a life outside practice that is filled with goals for which you should save.

Although accumulating an emergency fund is not as fun as your other objectives, it is the foundation of your financial life. Having money available when it’s needed protects you, your family, your business and your myriad goals. Practice owners need to stash cash separate from the company accounts to cover their personal needs and ensure that unexpected expenses don’t interfere with the clinic’s financial stability.

5 Steps to Take

How do you build an emergency fund? By following these five rules:

1. Clarify how much your life costs. Many people think they know the number, but most are surprised after tracking software extracts real-time spending data. We are not talking about a theoretical budget either. Take the time to be aware of what you spend each month so you know where your money is going.
2. Determine your sleep number. Like in the mattress commercials, everyone has a preference for how much cash they want in their emergency savings account so that they sleep easily at night. For some people, it’s a set number of months of covered expenses. (Our veterinary clients tend to cover three to six months of costs due to the industry’s high levels of job security.) For some, it’s a dollar amount — for example, $5,000 for some and $100,000 for others. Think through what would make you feel most comfortable.
3. Account for significant anticipated expenses. List the vacations, new cars and home purchases likely to happen in the next three or four years.
4. Get intentional about allocating cash flow to your savings. Once you establish your cash sleep number, choose a fixed amount you want to contribute toward your emergency savings goal with each paycheck. Most importantly, follow through on it. Consider automating a monthly transfer to a savings account to help you stay accountable to your goal.
5. Refill your savings after you use it. This action is a commonly missed step. You finally reached your emergency fund goal, but an expense came up. If you don’t replenish the account, the balance can drop quickly as other unexpected costs arise, putting you back where you started.

Enjoy the Benefits

If you follow our advice, you will:

• Create discipline and confidence. You will have more clarity about your monthly cash flow, feel more in control and become financially stronger. Over time, you will build your savings muscle and prove you can save more.
• Enjoy peace of mind. Everyone knows that money is one of the highest contributors to personal stress. With cash in place, you will sleep well knowing that if your car’s transmission fails on your way to work tomorrow morning, you have the money to cover the repair without affecting your life or veterinary practice.
• Fund your other goals. If your emergency account is in place and an unexpected expense arises, you will cover the cost without worrying about halting contributions to your retirement account, student loans, children’s educational savings and other significant purchases.

Become Financially Stress-Free

Let us be clear. Stashing money away for the unexpected is not the most exciting monthly task. However, it gives you a foundation on which to build the rest of your financial life. Many people experienced an emergency expense that quickly became an emotional crisis because they didn’t know where the money would come from. Everything in their world became frantic and stressed.

The alternative should be readily apparent. Imagine that same emergency occurs, but you pay for it this time without missing a beat. No crisis. No lost sleep. No wondering about how to cover your other bills.

Before you do anything else, build a strong financial foundation through savings to give you a buffer in life. Wise financial decision-making creates long-term financial peace of mind.

LEARN MORE

• “Consumer Emergency Expenses Rise 16% Year-Over-Year to $1,700, Far Exceeding The $400 Benchmark,” bit.ly/41RLMYz
• “37% of Americans Can’t Afford an Emergency Expense Over $400,” bit.ly/4gKAM3o
• “Survey: Half of American Cardholders Now Carry Credit Card Debt,” bit.ly/4fsQHT2