By Ronald W. Rogé, MS, CFP®
Chairman and CEO
I have been thinking about what folks can do while they are sheltering in place that might help them come out of this crisis in better financial shape than they were going into it.
As a financial advisor for over 34 years, there are two suggestions my team makes consistently that tend to get ignored – especially by younger adults.
- Create an Emergency Fund to pay for 3 to 6 months of expenses.
- Take a 15-year mortgage instead of the traditional 30-year mortgage.
The Emergency Fund
The emergency fund should be invested in a liquid savings account or money market fund before you invest in anything else. If you had this fund available, you would likely be sailing through this Covid-19 crisis with more confidence. We know from national studies that 40% of American families cannot raise $400 in an emergency. Which means that the vast majority of Americans are living paycheck to paycheck.
Many of the folks who have lost their employment have no emergency fund to fall back on while looking for employment or waiting for a crisis to pass. Not only do they have a global crisis to deal with, they also have a very desperate, emotional, debilitating, and embarrassing personal crisis on their hands.
New Resolution: Create an Emergency Fund
Part of the problem is most Americans do not know what their expenses are, so how can they calculate how much they need to save in an emergency fund? First, they need to create a budget for themselves. We offer a free budget worksheet on our Web site that you can download to create your own personal budget.
15-Year Mortgage Instead of 30-Year Mortgage
Most first-time home buyers opt for the traditional 30-year mortgage because they may not have been offered the 15-year option. The difference in the amount of interest payments between the two loans is huge. Depending on the size of the mortgage, it can amount to hundreds of thousands of dollars in additional interest over the life of the loan.
New Resolution: Refinance You Mortgage to a Shorter-Term Mortgage
The COVID-19 crisis has created an opportunity for those who are employed with an existing mortgage to refinance to a 15-year, or shorter, loan because interest rates are at historic lows. A 15-year, or shorter-term mortgage, will also have lower interest rates than the traditional 30-year loan. This is an opportunity to save a large sum of money.
Many of us have recently been given the gift of time, and it is the perfect occasion to sit down and work on a budget to help fuel your family’s emergency fund, or to research your various mortgage options.
R.W. Rogé & Company, Inc. helps clients plan, achieve and live the life they want. To learn more about how we do this, click here. To discuss your financial future with a highly experienced Senior Wealth Advisor, contact us at 631.218.0077 or at email@example.com for a complimentary consultation.