Emergency Fund Essentials for Homeowners and Future Buyers

When it comes to personal finance, one of the most important tools for financial success is establishing and maintaining an Emergency Fund. What does an emergency fund consist of and what should it be used for? In this blog, we will discuss why you should have an emergency fund, how much you should keep in it and how to successfully build one.

Why You Need an Emergency Fund

Whether you’re renting, planning to buy, or already a homeowner, having an emergency fund is essential for managing unexpected expenses.

Here are a few types of unexpected expenses that you need to be prepared for:

• Protection Against Job Loss or Reduced Income
• Home Maintenance and Repairs
• Natural Disasters or Car Accidents
• Health Issues
• Debt Relief
• Peace of Mind

Amount You Should Allocate to an Emergency Fund

The general rule of thumb for establishing an emergency fund is to set aside 3-6 months’ worth of expenses. Doing so will ensure you have a cushion of cash to cover housing costs, miscellaneous bills and essentials like groceries during a temporary financial setback.

If you are a homeowner, you may want to consider saving more than 3-6 months of living expenses. Homeownership brings additional costs, such as property taxes, insurance, mortgage payments, and maintenance. (For homeowners, it’s a good rule of thumb to consider saving 6 months to a year’s worth of living expenses).

The first step in determining how much you save is to calculate your essential monthly expenses. This includes things like:

• Rent or mortgage payments
• Utilities
• Groceries
• Insurance premiums
• Loan repayments
• Transportation costs

These are your primary expenses. Once you have an accurate total of these monthly expenses, you’ll know how much you need to cover your basic living costs.

Successfully Building an Emergency Fund

Building an emergency fund doesn’t have to happen overnight. However, you do want to make it a priority and stay consistent. Here are a few steps to help you successfully build your emergency fund:

Set a Clear Goal

Before you start saving, determine how much you need. Start by calculating your monthly expenses, including your mortgage, utilities, insurance, groceries, and any debt payments. Multiply that by 3 or 6 months to set your savings target. This gives you a set goal to work towards and helps you stay on track.

Start Small and Stay Consistent

You don’t need to save your entire emergency fund right away. Start by setting aside a small, manageable amount each month. Even $100 or $200 a month can add up overtime. The key is consistency. Automate your savings by setting up monthly transfers from your checking account to your emergency fund, so you don’t have to think about it. Over time, you’ll be amazed at how quickly your fund grows.

Cut Back on Non-Essential Spending

Building an emergency fund requires discipline, and one of the best ways to accelerate your savings is by cutting back on unnecessary expenses. Review your budget and identify areas where you can reduce spending. Doing this could be dining out less, canceling unused subscriptions, or shopping more strategically. Redirect these savings into your emergency fund.

Use Unexpected Monetary Gifts to Boost Your Emergency Fund

Any unexpected monetary deposits, such as tax refunds, bonuses, or a side gig income, can be a great opportunity to give your emergency fund a boost. If you receive extra money, consider putting a portion of it directly into your emergency fund rather than spending it on non-essentials.

Keep Your Emergency Fund Separate

To avoid the temptation of using your emergency fund for non-emergencies, keep it in a separate account. Doing this will help you keep the money separate and help it grow.

Monitor Regularly

As your financial situation changes, whether you get a raise, pay off debt, or make lifestyle changes, it’s important to reassess your emergency fund. If your living expenses increase, your emergency fund goal should increase as well. Regularly check in to ensure you’re on track to meet your goal.

An emergency fund is one of the best ways to protect yourself from financial setbacks. Using these same savings tactics can also help if you are looking to become a homeowner one day. Whether you’re a renter, homebuyer or homeowner, it’s always a good idea to have an emergency fund. Set clear savings goals, stay consistent, and cut back where you can. Doing these things will help you reach your goal and save you stress and headache of unexpected occurrences in the future.

Contact one of our trusted Southern Trust Mortgage loan officers today if you’re ready to make a move this new year. Happy saving!

The Big Difference Between Renter and Homeowner Net Worth

When it comes to building wealth, the difference between renting and owning a home can be staggering, particularly when you look at net worth. While renting may seem more affordable or flexible in the short term, homeownership can have a significant impact on your long-term financial health. In this blog, we’ll break down the concept of net worth, explore the key differences in the net worth of renters and homeowners, and discuss the financial impact of renting versus owning.

What Is Net Worth?

Net worth is a measure of your financial health and represents the difference between your assets and liabilities. In simple terms, it’s everything you own minus any debt you have. Assets include things like savings, investments, and property, while liabilities include debts like credit card balances, loans, and mortgages. Your net worth can give you a glimpse of your financial position and help you track your progress toward achieving your financial goals.

The Key Differences in Net Worth of Renters vs. Homeowners

The net worth of renters and homeowners is significantly different due to the long-term financial impact of homeownership. Homeowners typically have much higher net worth than renters. In fact, the average homeowner’s net worth is often more than 40 times higher than that of a renter.

When you rent, the money you pay each month goes to your landlord and doesn’t contribute to your financial future. You’re essentially paying for the privilege of living in someone else’s property without gaining any ownership.

On the other hand, when you own a home, your monthly mortgage payments help build equity. Over time, as the value of the property increases (and you pay down the mortgage), your net worth grows. Homeownership also offers tax advantages, such as deductions on mortgage interest, which can contribute to greater financial stability.

Financial Impact of Renting vs. Owning

The financial impact of renting versus owning can be profound. While renting may seem more affordable in the short term, it can often be more expensive in the long run, especially when considering rising rental prices and the lack of asset accumulation. Renters may face rent increases year after year, while never building equity or contributing to their own financial future.

In contrast, owning a home offers the opportunity to build long-term wealth. As you pay down the mortgage, your equity grows, and the value of the home may appreciate over time. Even though owning a home comes with upfront costs, such as a down payment and closing costs, the long-term benefits can far outweigh these initial expenses.

Additionally, owning a home can offer a huge advantage against inflation. As rental prices rise due to market conditions, homeowners with fixed-rate mortgages are shielded from increases in their monthly payments. The stability that comes with homeownership is one of the key reasons why it’s considered one of the most effective ways to build wealth over time.

The difference in net worth between renters and homeowners is a clear reflection of the long-term financial benefits of owning a home. While renting may seem like the more flexible option, it lacks the wealth-building potential of homeownership. Homeowners have the opportunity to build equity, enjoy tax benefits, and protect themselves from varying trends, such as inflation. All of which contributes to significantly higher net worth. If building wealth and securing your financial future are important goals, contacting an STM loan officer should be in your future. Investing in a home could be one of the best decisions you make. Take the first step toward homeownership today and start building your financial future!