Are You Among the 67% Who Don’t Have $500 for an Emergency Savings or Emergency Fund?
Alarmingly isn’t it? Everyone should have an emergency fund. Only 37% of Americans have enough emergency savings to pay for a $500 crisis. That is roughly 4 in 10 Americans have something to cover an emergency. And that is a small emergency like a car repair or broken appliance. What about something major like a root canal or repairing a roof from wind damage?
This is according to a survey from Bankrate.com conducted by Princeton Survey Research Associates International. Their Money Pulse survey focused on budgeting and unexpected expenses for American households. They reported that the other 63% would have to resort to cutting back spending in other areas, charging to a credit card, or borrowing money from friends and family to pay for an unforeseen event.
Where does the money come from when you need it?
You can cut back on spending in such areas as going out to eat or not buying coffee every morning. Another area may be buying a newer cell phone, expensive gifts, subscribing to cable or satellite TV, or updating technology programs or tools. But what about dipping into your savings? People with higher incomes were most likely to rely on savings for emergencies. Half of those people earning $75,000 or more per year said they could cough up the dough for an expense that came without warning. In contrast, only 23% of people with yearly incomes less than $30,000 said they would withdraw money from their savings accounts, but it would be a challenge to deposit additional money afterward to make up for the withdrawal. And 9% of respondents at this income level said they didn’t know how they would pay for an unexpected expense – Ouch!
How much is enough money for an emergency savings?
According to a survey by the personal financial website GOBankingRates, 69% of Americans have less than $1,000 in their savings accounts, and 21% don’t even have an open savings account. What’s more troubling is that 34% of Americans have no savings at all. The average American sets aside about 5% of disposable income as savings, according to the U.S. Bureau of Economic Analysis. This amount is not sufficient by financial experts to pay for most people’s retirement, according to the Bureau. Most recommend a minimum of 6 months savings to cover all your expenses.
How do people deal with unexpected expenses?
That being said, when asked in the survey how they had dealt with their most recent unexpected expense? 36% of respondents said they took the money from their savings because they had no other choice. Another 20% said they dealt with it by setting up a payment program, and 13% used a credit card. About 1 in 10 said they borrowed from family and friends, while another 11% said they haven’t even begun paying a recent emergency bill.
There is never a good time for unexpected expenses.
We all have to think about unexpected expenses that will hit us at the worst possible times. So instead of being reactive we need to be proactive. We must do all we can to avoid the stress that a financial emergency creates. If we try to boost our savings, it will give us peace of mind and help us sleep at night. We can’t avoid unforeseen expenses, right? But if we have a plan in place, that is a step in the right direction. In the Bankrate Survey, only one in five Americans reported having at least six months’ worth of expenses saved. That is the amount of savings some financial advisors and other professionals suggest to be a sufficient cushion.
Money is the #1 stress factor in relationships.
According to Psychology Today, money is the biggest cause for divorce. Think about the stress of having a health emergency or accident… what would this mean to you? How would it affect you? What if you had a job loss? Would you have enough money to pay your mortgage or rent for 6 months? Car payments? Your child’s college tuition? Before you experience a challenge like this, be sure to examine your various insurance policies. These include health and medical, long-term care, and auto insurance. Talk to your insurance agent or financial advisor to ensure you have enough coverage for any emergencies.
Has your tax refund been delayed?
Some people make it a habit of banking their tax refund. This is a good option to start an emergency fund. Has yours come yet? Are you still waiting on it? If it has been more than 2 weeks, then we suggest that you call us. It is possible you could have become a victim of tax refund fraud. Call Alex Franch, BS EA a call at 781.849.7200 for details. Alex Franch is an enrolled agent with the IRS. He can help you research what the hold up may be. And, if you did fall victim to identity theft or fraud he can help you file the paperwork necessary to resolve the issue.
Make a Habit of Saving Money
Emergency funds are important for many reasons. The emergency fund provides peace of mind, avoiding the use of credit cards, less relational stress, and it creates more stability when it comes to traditional budgeting.
Make saving money a habit, and enlist the help of a fee-only financial advisor to help you make a plan. Doing this will help you avoid being among the 67% of people who can’t afford a $500 emergency. Call our office and we can refer you to not only a dependable accountant but all a reliable financial advisor. Call Alex at our office at 781-849-7200 today.
Sources and Resources
- Find Unclaimed Money
- Retirement Savings: the Earlier, the Better
- 3 Reasons to Avoid the 401k Tax Spiral
- Bankrate survey: Just 4 in 10 Americans Have Savings They’d Rely on in an Emergency
- 69% of Americans Have Less Than $1,000 In Savings
- Bureau of Econominc Analysis
- Psychology Today: How Financial Problems & Stress Cause Divorce