Many consumers consider an emergency fund to be a luxury account that requires a great deal of income to manage, but this is not the case. Emergency funds are extremely important, and every American should be saving to create one, but unfortunately not enough are doing so.
According to a recent survey by Bankrate, 29% of Americans don’t have an emergency savings account. This number is quite alarming, and is also the highest percentage it has been in five years. There is no question saving money for an unplanned emergency is not at the front of most consumers’ minds, but that trend needs to be turned around, as noted by Greg McBride, chief financial analyst for Bankrate.
“These results are further evidence that Americans remain woefully under-saved for unplanned expenses and rather than progressing, are moving in the wrong direction,” McBride said. “Nothing helps you sleep better at night than knowing you have money tucked away for a rainy day.”
“An emergency fund is a lifeline when you need it.”
Rainy days take on many appearances
When it comes to preparing for a rainy day, it is best to consider as many scenarios as you can. Emergencies don’t always come as damage to property or a setback on payments, sometimes they can take the form of unemployment or necessary travel. In fact, according to Fast Cash, job loss is the most common reason that people dig into their emergency fund.
Just because you wouldn’t be receiving a paycheck doesn’t mean your bills would be put on hold. You have all kinds of monthly obligations, whether they are for your home, car, groceries, your children’s schooling or a handful of other possibilities. How are you going to pay for these items if you don’t have an emergency fund in place?
Another common setback comes in the form of medical expenses. Face it, accidents happen, and while you probably have health insurance, there are certainly services your plan won’t cover. If you don’t have coverage, then you are looking at an even bigger bill. You don’t want to be put into a situation where you have to choose between your health and your wallet.
Credit cards should be a last option
For many Americans who don’t have an emergency fund and can’t cover the cost of a sudden setback, they turn to their credit cards. Depending on the cost of the problem, this is not a terrible option, but according to Smart Asset, this is not a practice that is going to last for the long term.
When you have an emergency fund in place you can prevent a situation that would normally cause you to run up your credit card debt.
So where do you begin?
While it is easy to talk about the importance of having an emergency fund, it can be more difficult to put an actual plan into action for saving. But really, there is nothing else to it but to assess your current situation.
Take a look at how much money you are bringing in every month and where it is all going. From there, you can find areas to cutback in. Certainly there are items you might have a hard time giving up, but you have to consider if these items are worth more than a lifeline during an emergency. Chances are they are not.
How much you decide to save is up to you. Just be honest with yourself and with your situation. You know what is affordable and what is not. Be realistic, set goals and create an emergency fund so you can prepare yourself for the future.