Is the foundation for your emergency savings rooted at home?
Life’s expensive—and that’s not likely to change. In a struggling economy, are your emergency savings feeling the squeeze? Do you have enough—or any—emergency savings built up to cover the “what ifs” life may throw your way? The majority of U.S. adults—57%—are currently unable to afford a $1,000 emergency expense.*
If you’re worried a small, unexpected expense could cause a ripple effect on your budget, start out by realistically assessing your budget and determining how you’d manage financially in the event the worst happens. Traditional guidance suggests saving anywhere from three to six months’ worth of living expenses. Everyone’s lifestyle and expenses are different, so be realistic about your unique situation.
Do you have an idea of how much you’d like in emergency savings but wonder how to achieve your goal when your budget is already stretched? The answer may be closer than you think.
If you’re a homeowner, your greatest financial asset may be the untapped equity you have in your home. Thanks to skyrocketing housing prices, homeowners are now sitting on nearly $30 trillion in home equity, according to the St. Louis Federal Reserve.^ That’s roughly $200,000 cash per homeowner in equity that can be accessed.
While a cash-out refinance may have previously been an appealing option, rising interest rates are making it less so. A home equity line-of-credit (HELOC) provides financial flexibility. As an open-ended line of credit, you can utilize the funds as needed for emergencies and make interest-only minimum payments during the draw period. A home equity loan is another option, but funds are provided as a single lump sum to be repaid over time.
Both options come with a variety of benefits, including lower interest than most personal loans and credit cards. Plus, the interest paid could even be tax deductible.† It’s important to explore your options, as there are differences to consider in how you draw the funds and repayment terms.
Emergencies will happen—you can almost always count on that. But when they happen, you’ll want to feel confident that you have access to the funds you need to cover unexpected expenses.
Your home’s equity could be the key to unlocking your emergency savings.
†Consult your tax and/or legal advisor for advice and information concerning your particular situation.