How Do I Build a Reserve or Emergency Fund?
Lesson6.How Do I Build a Reserve or Emergency Fund?
Overall Objective: At the conclusion of this lesson, students will:
- Realize the importance of building a reserve
- Know the best amount for a financial reserve
- Understand how to set up a reserve, and
- How to invest a reserve
Preparation
- Be prepared to discuss the items recorded on the forms if needed.
- Be ready to discuss how to fill out each column with class members.
- Review Reading 6: James E. Faust, “Responsibility for Welfare Rests with Me and My Family,” Ensign, May 1986, 20.
- Print out Lesson 6T: How Do I Build a Reserve or Emergency FundSupport Material if desired
Materials Needed:
- Copies of the scriptures
Suggested Lesson Development
Counsel from our Leaders
We have been wisely counseled to build a reserve or emergency fund. A reserve is an amount of money that is set aside against a time of need that we can access quickly in case of an emergency. In the February 27, 2008 letter from the First Presidency it said:
We are concerned that some Church members ignore the oft-repeated direction to prepare and live within a budget, avoid consumer debt, and to save against a time of need. Consideration should also be given to investing wisely with responsible and established financial institutions. We are also concerned that there are those who use relationships of trust to promote risky or even fraudulent investment and business schemes. (italics added, First Presidency Letter to the Church, March 27, 2008)
As you work to obey the counsel to prepare and live your budget or spending plan, to avoid and pay off consumer and other debt, and to get your financial house in order, it is important that you build a reserve or emergency fund. A reserve is an amount of money which has been saved to meet any emergency needs which will come.
Reserve Thought Questions:
- Why build a reserve? (to meet the needs of the financial storms which will arise)
- What are some other reasons for a reserve account? (A reserved brings peace of mind, saves money on other things such as insurance, helps learn the importance of saving, etc. There are other reasons as well.)
How to Build a Reserve
- How do you build a reserve?
Just as you set aside a certain amount of money each month to pay off your debts, it is important that you set aside some money each week and begin building your reserve. Set a goal to save a certain amount each week, for example, $10 per week, and then begin working toward it. If you are using your Annual and Monthly Budgets or Spending Plans discussed earlier and are following your plan, there is a good chance you will reach your reserve goal.
- How much should your reserve goal be?
The traditional recommendation from the financial planning community is three to six months of money necessary to cover your living expenses. (Jack R. Kapoor, Les R. Dlabay, and Robert J. Hughes, Focus on Personal Finance, McGraw-Hill Irwin, New York, 2006, p. 45). Some even prefer the larger of three to six months of income to give just a little more cushion in savings. If your income is stable, perhaps the three months is sufficient. If your income varies, perhaps six months would be better.
Where to Put your Reserve
- Where should you invest your reserve?
Since this money needs to be accessed quickly, it should be in investments which are very liquid, low risk, and which can be accessed within a day or two. For this reasons, preferable alternatives include FDIC insured savings or checking with bank or internet bank that gives an adequate return, money market accounts, money market deposit accounts, or other high-yield checking accounts.
Due to the volatility of stocks and stock mutual funds, it is not recommended that you put your reserve money here, other than perhaps “no-load” money market mutual funds which have check writing capabilities. Always invest with a reputable financial institution or bank or credit union as counseled.
Avoiding Scams and Get-Rich-Quick Schemes
Elder Marvin J. Ashton wrote:
Modern-day prophets have pled in plainness for us to avoid “get-rich-quick” schemes if we would avoid the heartaches of financial bondage. Perhaps we have not said enough about the fact that too many of us, in our moments of dreaming of grandeur, plant the seeds of economic disaster. Then at a later date when much is lost, we blame those who participated with us. It is difficult to be of good cheer when self-deceit is our companion. When we willingly expose ourselves to the winds and storms of fraud and scam, we should not be surprised when we come down with deficit disease. Over the years of listening to those who have suffered heavy money losses, I have heard many in desperation declare, “I was taken.” Often my heart, mind, and the Spirit have prompted me to share, “Yes, you were taken by yourself.” We all need to be encouraged to lift up our heads and see where our thoughts and undeclared priorities are taking us. Self-deceit permits us to blame others for our failures. (Marvin J. Ashton, “Be of Good Cheer,” Ensign, May 1986, 66)
Too often due to greed, ignorance, or the felt need to “catch up” because we have failed to save in the past, we overlook the telltale red flags that investments may be scams and invest anyway. We hope that because we pay our tithing and serve in the church that the Lord will make this investment work out. Sadly, that is not the way the Lord works. He teaches preparation, discipline, hard work, the law of the harvest, studying it out in your mind, and prayer, rather than relying on other’s words, no work, no study, and just luck.
Sadly, when we fail to address our motives and when we become more intent on acquiring things than putting the Lord’s kingdom first we are more susceptible to self-deceit and hence these scams.
Elder M. Russell Ballard said:
There are no shortcuts to financial security. There are no get-rich-quick schemes that work. Do not trust your money to others without a thorough evaluation of any proposed investment. Our people have lost far too much money by trusting their assets to others. In my judgment, we never will have balance in our lives unless our finances are securely under control. (“Keeping Life’s Demands in Balance,” Ensign, May 1987, 13)
- How do we maintain balance in our lives? (We keep the commandments of God and strive to do the things He would have us do)
- What questions should we ask to see if we have balance in our lives? (Do we have our priorities in order, or are we “unbalanced” in seeking the things of this world instead. Do we remember the key principles of finance, which are ownership, stewardship, agency, and accountability?)
Conclusion
As stewards, it is our responsibility to prepare for that which is to come. Part of that preparation is to be prepared financially. We have been counseled to save for a time of need. Building a reserve or emergency fund is an important part of that preparation.
In addition, as stewards, we should take care of the resources that we have. We should invest this money wisely, and make sure we do not lose it to scams or other get-rich-quick schemes.
The challenge then is to do those things the Lord would have us do, to keep our priorities in order, and to understand the principles of personal finance (ownership, stewardship, agency, and accountability) so we can avoid the problem of self-deceit. Once we avoid self-deceit, it is so much easier to avoid scams and other get-rich-quick schemes and live the gospel as we should.
Assignments
Reading. The assignment for this lesson was to read the article byJames E. Faust, “Responsibility for Welfare Rests with Me and My Family,” Ensign, May 1986, 20.
Family Home Evening Assignment. Select one of the points from the reading above. Use that point as your lesson for your Family Home Evening lesson that you teach your family. Be prepared to comment on your Family Home Evening activity next Sunday. There are also two other FHE lessons that may be used.
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