Financial Planning Tips for Life’s Ups and Downs

In New Orleans, rainy days present some unique challenges — where else do you receive texts letting you know that neutral ground parking is allowed? If you haven’t donned rain boots in your pajamas in a rush to move your car to higher ground, consider yourself luckier than most. Preparing for a rainy day here can mean a lot of things. In a general sense, of course, preparing for a rainy day implies preparing for the unexpected, and if there’s one city where one can expect the unexpected, this is it.

Financially, “preparing for a rainy day” is necessary for navigating life’s twists and turns without finding yourself in debt or at risk of not being able to pay your bills. Financial planners and advisors commonly recommend setting money aside for unexpected emergencies, whether you’re managing your household’s finances or your business’s. A residential HVAC system going out mid-summer or a deceivingly deep new pothole could easily derail a family or individual’s financial stability. Business owners need to look no further than the recent New Orleans building collapses and subsequent business and restaurant closures to see why emergency funds are so important.

According to Eric Greschner, fee-only financial advisor at Regatta Research & Money Management, LLC, other common sources of financial stress include the loss of a job, medical expenses not covered by insurance, and car repairs, especially with today’s high-tech, expensive vehicles.

“Sometimes even pets get sick — vet bills can be high and often with no pet insurance coverage,” he said.

Greschner also lists the literal rainy day as a potential strain. Hurricane-related issues such as extended evacuations and damaged homes with only partial and/or an extended payoff from the insurance company are serious considerations for locals who face unpredictable hurricane seasons that span half the year. In 2024, two separate hurricanes made landfall in the Big Bend area of Florida, doubling the disruption (and preparations) of residents there. Would you be able to sustain two evacuations and potential storm damage?

“Ideally, families have an emergency reserve in cash for unexpected expenses,” said Jude Boudreaux, shareholder and senior financial planner at The Planning Center. Both Boudreaux and Greschner agree that families should set aside at least three to six months of living expenses, though that amount can vary significantly based on circumstances.

“Variables that can increase the amount you set aside can include only one earner, low job stability, unpredictable earnings, high debt levels, and dependents such as children and/or aging parents,” said Greschner.

For rental property owners, Greschner suggests keeping a separate emergency fund that could cover rental-related expenses such as mortgage, taxes, repairs, utilities, and tenant vacancies. Likewise for business owners, he suggests a separate business expense emergency fund for continued operations, including supplies, replacement parts, payroll, etc.

When setting aside emergency savings, it’s important to keep in mind its purpose, which is to be available for an immediate need. Setting up a highly liquid, safe emergency savings account (ESA) will ensure the funds are accessible when you need them most. In addition to its safety and liquidity, Greschner believes an ideal account keeps pace with inflation.

“Many people use checking accounts for their ESA,” he said. “However, they meet the first two criteria but often struggle with the third. As an alternative, we suggest high yield savings accounts or short-term CDs.”

Boudreaux also favors high yield savings accounts for emergency savings because of their higher interest rates than traditional savings accounts.

“High-yield savings accounts are great ways to put cash aside, have that cash earn some interest, and have the funds immediately available in the event of an unexpected expense,” he said. According to a recent CNBC article, high yield savings accounts can earn 10 times the returns of traditional savings accounts, with traditional savings accounts earning around 0.43% interest and high yield savings accounts earning around four percent at the time of publication.

Greschner adds that growth beyond inflation is ideal, but investors run the risk of principal loss if they are too aggressive and are forced to sell when investments are down. He warns there could also be negative tax consequences in certain scenarios. For these reasons, high yield savings accounts, money market accounts and short-term CDs are typically favored for storing and growing emergency savings. Greschner notes that longer term CDs with higher yields can lock up emergency funds for too long — if you need the money prior to the CD’s maturation, you typically have to pay a penalty.

New Orleans is a city with a substantial tourism industry that thrives thanks to its hospitality workforce. And while many working residents see hourly or salaried wages, many workers rely on tips or commissions, which can vary season by season. Preparing for the unexpected can be more challenging with unpredictable income, but emergency savings are important nonetheless.

“For those spending most of their monthly income, it’s difficult to build a large buffer; however, it’s still important as without it, those unexpected expenses usually go onto a credit card or other high interest way of paying for it,” said Boudreaux. “Saving is just ‘future spending’ in most situations, so when there is the chance to take funds that have been committed to a payment — like a car note that gets paid off — directing that money to continue to pay yourself on a monthly basis can be a great way to start to set some aside.”

Boudreaux emphasizes starting where you are and building over time. While it can feel discouraging if you’re not able to build a reserve as quickly as you’d like, it still helps to take small weekly or monthly steps to add to it.

“If you decided not to buy a coffee, transfer that five dollars you would have spent to the emergency savings,” he said. “Small choices like this can be a fun way to build savings.”

Greschner suggests starting by creating a budget, calculating expenses and determining how much needs to be set aside.

“Once this is done, automate your savings so that you are saving a portion of your goal to a dedicated account every month or quarter until you reach your target,” he said.

What happens if an emergency hits prior to a person reaching their target? Greschner lists a few methods that may help in getting over the hump.

“You may want to consider a home equity line of credit (HELOC), reverse mortgage, 0% credit card balance transfers or even 401(k) loans, etc., all of which could be used while you replenish your primary emergency fund,” he said. “Another idea, if you have a Roth IRA, is to consider earmarking a portion of your Roth IRA’s ‘contributions’ (i.e., tax-free and penalty-free) as part of your emergency fund for any unexpected expenses.”

For people with life insurance, another idea offered by Greschner is considering whether your permanent life insurance policy’s cash value could be earmarked as a source for your emergency fund, while at the same time providing coverage for your life insurance needs.

As hurricane season nears, both Greschner and Boudreaux recommend factoring disaster-related expenses into your ESA and budget.

“Many of us have larger deductibles on our homeowner’s policies these days with a five percent deductible for named storms not being uncommon,” said Boudreaux. “If you had major storm damage, how would you pay that first five percent? You may want to have a larger emergency fund or perhaps open a home equity line of credit to be available for a larger emergency,” he said.

In addition to estimating the cost of insurance deductibles, Greschner recommends factoring in to your budget repairs to strengthen your home against wind and water damage.

“This is especially true if you live in a flood prone area or an older home, one that is not built to today’s stricter building codes, or one with an older roof,” he said.

Greschner said to keep in mind how your income might be affected if you have to evacuate. Estimate costs of possible mandatory evacuations and essentials like food, clothing, shelter, gas and emergency medical assistance. As part of your emergency savings plan, he suggests having cash on hand in case you need to buy fuel or supplies and electronic systems including ATMs are down or empty. Other hurricane-prep considerations are having an emergency-only credit card with a large, unused balance and — for the purposes of redundancy — having financial documents accessible both on paper and digitally.

While we all hope to be spared from future hurricanes, sudden deluges, frustrating injuries, or car trouble, the challenges of life are inevitable. The good news is that we can expect the unexpected with money tucked away and rain boots by the door.

Disclaimer: The content of this article is for informational purposes only. Do not construe any information or other material as official legal, tax, investment, financial or other advice. This article is not a substitute for personal advice from a financial professional.