Could You Cover a $1,000 Emergency? Most Couldn’t!
Despite recent memories of jobs and homes lost during the Great Recession, study after study indicate that Americans aren’t socking away money for the next layoff, illness or car repair.
So, it’s no surprise that a new study, released in May, reveals that most Americans don’t have the cash on hand to cover a $1,000 emergency. The poll, conducted by The Associated Press-NORC Center for Public Affairs Research, found that two-thirds of Americans would have trouble scraping together that much cash.
Read on if you don’t have emergency savings!
Flat wages and rising costs are two reasons for the low rate of saving in the United States. Still, financial experts agree that, regardless, an emergency fund is critical for anybody’s financial health -- even if that means cutting expenses or finding ways to earn more money until the reserve is full.
Ready to get started? Here are five things to consider as you determine how much money should be in your emergency fund and how you should save it:
5 Emergency Fund Factors to Consider:
- Living expenses: You have no idea what emergency is lurking around the corner … and how much it’s going to cost you. That’s why financial experts advise putting away at least three to six months of living expenses into an emergency fund. With a full fund, you can focus on surviving the crisis without the stress of how you’ll cover your day-to-day expenses. In fact, an emergency fund can actually save you some money, allowing you to avoid late fees or the loss of your car or property because you can’t keep up with payments.
- Job stability: The Great Recession might be behind us, but layoffs are hardly a thing of the past. Job cuts in 2015 totaled 606,000 for U.S.-based employers, the highest since 2011. While there are signs of improvement, it makes sense to prepare for a potential layoff. As you decide how much to set aside for emergencies, consider whether your industry is prone to job cuts. Do you have other skills that you could fall back on to earn some money during a job search? How easily could you find a new job if you lost the one you have now? Your answers to those questions should factor into your decision about how much to save.
- Personal comfort: Your emergency fund is a lot like an insurance policy. It’s a pot of money to fall back on when things go wrong. Think deeply about how much money would give you that freedom from anxiety if something were to happen. For some people, it’s enough to cover three months of living expenses. For others, it’s a full year or more. Plan accordingly.
- Attainable goals: There’s no shame in starting small. At least you’re starting somewhere. Look at your budget to see where you can eliminate unneeded expenses. If you cut out that weekly trip to the fast food restaurant, which can cost a family of four about $25, you’ve put away $1,300 in your emergency fund.
- Only for emergencies: It’s easy to pull a little here and there from that pot of money just sitting, unused. Don’t. Only tap into your emergency fund when you’re facing a major crisis. Don’t use it to buy the latest smartphone or fancy cruise. In fact, it might be best to put your emergency fund in a separate account, often a money market account, so you’re not tempted to pull money from it.
An emergency fund can help prevent a financial disaster
It isn’t easy saving for rainy days, but, once your emergency fund is full, that peace of mind you will have achieved can be priceless.