Friday, February 27, 2015
FAIRFIELD-SUISUN, CALIFORNIA
99 CENTS

Federal health care law affects need for emergency funds

sievers column sig

By
From page B8 | February 02, 2014 |

The fact that every household needs cash during uncertain times has become one degree more complicated with the new health insurance situation.

After examining a number of health policies from different providers, I see a clear pattern. Each of us must expect to pay more of the regular costs for health care. The insurance policies are there to protect us from large and catastrophic costs. If you think about having a large deductible on your car or home, the analogy is apparent. You must be financially prepared to cover much of the costs of regular care and the first portion of the high costs associated with hospitalization for major health care.

So how should you adapt your finances to protect yourself? Heretofore, I have recommended an emergency fund for protection against a cash flow crisis spawned by a job layoff, distressed business, major investment loss, extraordinary health care expenses, or some other calamity. You cannot really anticipate these potential damaging financial events.

The new health insurance policies have much higher deductibles and total out-of-pocket costs before the insurance begins to cover the costs. Be prepared. I recommend that you have the annual out-of-pocket maximum amount in addition to your regular emergency fund. This may seem like a large amount, but the crux of the matter is how to manage any health costs which may occur each year.

Remember, the deductible resets each year.

The relevant question is how much reserve cash is appropriate to weather a financial storm. Too much cash is inefficient, while too little cash may turn a short-term cash flow crunch into a long-term financial struggle. Estimating the proper amount of emergency cash is more than academic. Proper liquidity can preserve your credit, buy time for a prudent job search, fund a career change or business start-up, and shelter your family from needless anxiety.

Here are general principles to consider for creating an emergency fund:

  • Determine your spending needs. The family’s monthly budget (not including taxes or business expenses) is an important reference. The size of the emergency fund should be calculated in multiples of the monthly budget. This helps you scale cash flow to actual needs.
  • Gauge your income stability. The more stable your income, the lower the amount needed for how many months of expenses to budget. A commonly suggested amount is six months, but this may be excessive for your specific circumstances. More stability suggests a smaller emergency fund. Less stability increases the needed amount.

Consider these factors:

  • More than one income earner in the family.
  • Different professions, employers, etc.
  • Recession resistance.
  • Job security, seniority, etc.
  • Income certainty (e.g., salary or commission).
  • Job skills and marketability.

Then there are these:

  • Comfort factor. Two months of expenses is probably a minimum. This would apply to someone who could easily find new employment. In extreme situations, you may need 12 months or more of liquidity. Most households fall in the range of two to six months. It could be longer if you anticipate a major expenditure or face greater financial risks, such as high debt, a pending legal settlement or tax bill. There is no formula appropriate for everyone. The most realistic amount is the one that gives you comfort and peace of mind. This is similar to establishing a risk tolerance in your investment portfolio. How much uncertainty can you take?
  • Access to money. Your cash is your first line of financial defense. Easy access is more crucial than interest. A bank account is quite appropriate, as this can provide a high degree of stability and immediate access.

There are other strategies you might explore, such as a home equity line of credit or more sophisticated portfolio structure. Keep in mind that all approaches carry risks that are specific to the asset groups and investment vehicles used.

Mark Sievers, president of Epsilon Financial Group, is a certified financial planner with a master’s in business administration from the University of California, Berkeley. Contact him at [email protected]

LEAVE A COMMENT

Discussion | No comments

The Daily Republic does not necessarily condone the comments here, nor does it review every post. Read our full policy

.

Solano News

 
Fairfield mayor ready to share a whale of a tale

By Amy Maginnis-Honey | From Page: B1

 
Oakland author, vet talks about researching Vietnamese side of war

By Ian Thompson | From Page: A1 | Gallery

Nonagenarian recounts life as spy in World War II

By Amy Maginnis-Honey | From Page: B1

 
 
Republican women to hear about immigration reform

By Amy Maginnis-Honey | From Page: A3, 1 Comment

 
2-day event will focus on bullying prevention

By Amy Maginnis-Honey | From Page: A3

 
Kaiser offers Capoot scholarships

By Bill Hicks | From Page: A4

 
Wolk to chair committee on state’s wine industry

By Kevin W. Green | From Page: A4

 
SafeQuest Solano plans garage sale, seeks donations

By Susan Hiland | From Page: A4

Suisun City police log: Feb. 25, 2015

By Susan Hiland | From Page: A12

 
Fairfield police log: Feb. 25, 2015

By Susan Hiland | From Page: A12

.

US / World

Llamas on the loose trends on Twitter

By The Associated Press | From Page: A2

 
Two inured in hazmat explosion

By The Associated Press | From Page: A4

No charges yet for train crash truck driver

By The Associated Press | From Page: A4

 
Sacramento man pressured to remove swastikas

By The Associated Press | From Page: A5

Not guilty plea for suspect in Hollywood exec murder

By The Associated Press | From Page: A5

 
After 67 years of marriage, couple dies holding hands

By The Associated Press | From Page: A5

 
Missing 400-year-old Italian books found in California

By The Associated Press | From Page: A5

Feds: 3 accused in Islamic State plot vocal about beliefs

By The Associated Press | From Page: A6

 
Saudi man convicted of conspiracy in ’98 US embassy bombings

By The Associated Press | From Page: A7

 
Panel: Use new meningitis vaccines only for outbreaks

By The Associated Press | From Page: A7

VA chief backs outside medical care as new program falters

By The Associated Press | From Page: A7

 
House GOP weighs new approach on Homeland Security

By The Associated Press | From Page: A7

Vandalism in Arizona shows the Internet’s vulnerability

By The Associated Press | From Page: A7

 
Prosecutor: Mom craved attention, poisoned child with salt

By The Associated Press | From Page: A7

Ukraine, rebels start pulling back heavy weapons in the east

By The Associated Press | From Page: A10

 
‘Jihadi John’ raised in UK, studied computers, reports say

By The Associated Press | From Page: A10

Militants abduct more Christians, smash ancient artifacts

By The Associated Press | From Page: A10

 
.

Living

Today in History: Feb. 27, 2015

By The Associated Press | From Page: A2

 
Community Calendar: Feb. 27, 2015

By Susan Hiland | From Page: A2

Horoscopes: Feb. 27, 2015

By Holiday Mathis | From Page: A9

 
I’m worrie about how my wife’s erratic behavior is affecting our kids

By Kathy Mitchell and Marcy Sugar | From Page: A9

.

Entertainment

Week in preview Feb. 27-March 5, 2015

By Amy Maginnis-Honey | From Page: B1

 
Review: Smith, Robbie pour on the charm in sharp ‘Focus’

By The Associated Press | From Page: B2

Custom dress Lupita Nyong’o wore at Oscars reported stolen

By The Associated Press | From Page: B2

 
Conan O’Brien takes his show to Cuba for a special hour

By The Associated Press | From Page: B2

ABC’s Sawyer does prime-time prison special

By The Associated Press | From Page: B3

 
Q&A: Writer-director-actor Mark Duplass is a busy guy

By The Associated Press | From Page: B3

Actor Will Patton charged with DUI in native South Carolina

By The Associated Press | From Page: B3

 
AP Exclusive: Redmayne lends voice to “Thomas & Friends”

By The Associated Press | From Page: B3

Entertainment Calendar: Feb. 27, 2015

By Susan Hiland | From Page: B4

 
Tea Leoni in a happy state as star of ‘Madam Secretary’

By The Associated Press | From Page: B5

Graceland brings Elvis back to his Las Vegas home

By The Associated Press | From Page: B6

 
TVGrid

By Daily Republic Syndicated Content | From Page: B6

.

Sports

A’s begin baseball’s mandatory domestic violence training

By The Associated Press | From Page: B7

 
Earthquakes set to open new MLS stadium

By The Associated Press | From Page: B7

LeBron scores 42, Cavs beat Warriors for 18th win in last 20

By The Associated Press | From Page: B7

 
 
NASCAR back on track for extra day of testing in Atlanta

By The Associated Press | From Page: B8

No word on possible MLB discipline for Angels star Hamilton

By The Associated Press | From Page: B8

 
Giants closer Casilla hit on shin during batting practice

By The Associated Press | From Page: B8

LeBron not happy colleges recruiting 10-year-old son

By The Associated Press | From Page: B8

 
IOC member, once critical of Rio, now sees ‘great progress’

By The Associated Press | From Page: B8

Judge rules for Peterson, opening door for reinstatement

By The Associated Press | From Page: B8

 
Herman survives windy day; McIlroy stumbles at Honda Classic

By The Associated Press | From Page: B8

Roberts, NBA writers open discussion over locker room access

By The Associated Press | From Page: B8

 
IOC relaxes rule on athletes and sponsors during Olympics

By The Associated Press | From Page: B8

Nevada gambling regulators sign off on Olympic betting

By The Associated Press | From Page: B8

 
Video shows Hernandez dancing near gas pump before killing

By The Associated Press | From Page: B8

Kings’ Collison to have surgery, re-evaluated in 3-6 weeks

By The Associated Press | From Page: B8

 
AP source: 49ers to bid to host college football title game

By The Associated Press | From Page: B8

 
Bulls say Rose to have surgery on Friday

By The Associated Press | From Page: B8

.

Business

Volkswagen Jetta is a pleasure to live with, not just to gawk at

By Washington Post | From Page: C1 | Gallery

 
5 things to know about ‘net neutrality’

By The Associated Press | From Page: A1

Regulators approve tougher rules for Internet providers

By The Associated Press | From Page: A1

 
Strong reliability scores should help Buick brand’s rebirth

By The Associated Press | From Page: C2

Nissan executive known as ‘father of the Z’ dies at 105

By The Associated Press | From Page: C2

 
Medical marijuana passes tough first hurdle in Utah

By The Associated Press | From Page: B11

Applications for US jobless aid rise to 313,000

By The Associated Press | From Page: B11

 
Google looks for more revenue from ads in Android app store

By The Associated Press | From Page: B11

Walmart CEO wading through mounting issues

By The Associated Press | From Page: B11

 
Pew study: Americans still stressed despite improved economy

By The Associated Press | From Page: B11

Facebook allows users to ‘fill in’ gender option

By The Associated Press | From Page: B11

 
.

Obituaries

Donald Grimm

By Nancy Green | From Page: A4

 
Gabriel T. Traub

By Nancy Green | From Page: A4, 1 Comment

Maria Kraszewski

By Nancy Green | From Page: A4

 
.

Comics

B.C.

By Daily Republic Syndicated Content | From Page: A8

 
Get Fuzzy

By Daily Republic Syndicated Content | From Page: A8

Rose is Rose

By Daily Republic Syndicated Content | From Page: A8

 
Wizard of Id

By Daily Republic Syndicated Content | From Page: A8

Zits

By Daily Republic Syndicated Content | From Page: A8

 
Blondie

By Daily Republic Syndicated Content | From Page: A8

Baldo

By Daily Republic Syndicated Content | From Page: A8

 
For Better or Worse

By Daily Republic Syndicated Content | From Page: A8

Sally Forth

By Daily Republic Syndicated Content | From Page: A8

 
Dilbert

By Daily Republic Syndicated Content | From Page: A8

Peanuts

By Daily Republic Syndicated Content | From Page: A8

 
Beetle Bailey

By Daily Republic Syndicated Content | From Page: A8

Pickles

By Daily Republic Syndicated Content | From Page: A8

 
Garfield

By Daily Republic Syndicated Content | From Page: A8

Frank and Ernest

By Daily Republic Syndicated Content | From Page: A8

 
Baby Blues

By Daily Republic Syndicated Content | From Page: A8

Cryptoquote

By Daily Republic Syndicated Content | From Page: A9

 
Bridge

By Daily Republic Syndicated Content | From Page: A9

Word Sleuth

By Daily Republic Syndicated Content | From Page: A9

 
Sudoku

By Daily Republic Syndicated Content | From Page: A9

Crossword

By Daily Republic Syndicated Content | From Page: A9