Lessons Learned from the Current Economic Downturn

The Commerce Department last week said the personal savings rate edged up to 4.2% of after-tax incomes in March, up from 4% in February. Households have spent less and saved more as they seek to replenish depleted nest eggs in the face of massive job layoffs and the uncertainty in the economy. While the savings rate has been increasing, a third of Americans have no emergency savings fund, according to the National Foundation for Credit Counseling; 57% of those who have a fund don't have enough in it.

How many of your clients have an emergency fund? Do they have enough in this fund? Do they know how much they need in that fund?

These are all questions we can help answer for our customers and prospects. This consultative and education oriented approach is what set our bankers apart. We continue to work with our clients to provide them with the information and resources they need to meet their financial needs.

If you have customers who have not yet set up an emergency fund or who do not have a sufficient amount set aside, now is the time to reach out to them. They will appreciate the call and will thank you for helping them to become more financially fit.

The process of setting up an adequate emergency fund is a simple 3 step process.

Step 1 – Determine amount needed in the emergency fund

Before you can determine how much your client needs in the emergency fund, they need to understand how much they spend each month. As tedious as it may seem, the best way to accomplish this is to go over the past three months of outflows to get a monthly average of expenses.

Once your client determines the avg. monthly expenses, the rule of thumb is that they should have three to six months of living expenses in this emergency fund at a minimum. For those who can afford to or who have less secure forms of income, twelve months would be even better.

Step 2 - Create a Savings Plan

This is the most important step. Clients have to be disciplined and need to be realistic as to how much they can set aside each month and how quickly they can build up the account. It will be made much easier for them if they set up automatic transfers or deposits to this emergency fund. If you don’t see it, you don’t spend it. The goal is to get the fund created as quickly as possible and setting up these automated deposits will ensure the fund continues to grow.

Step 3 – Watch it Grow, Leave it Alone

Your client should monitor the account, but not touch the funds unless it is really for the unplanned emergency expenses they were intended to fund. Your client should also make sure that they adjust the amount in the fund based upon life changes or changes in monthly expenses. An annual review with them will ensure that they keep an adequate balance and that the fund keeps up with their changing lifestyle.

Who will be the first in your office to set up and emergency savings fund?