There has been a lot of talk about the financial status of Americans. A Report on the Economic Well-Being of U.S. Households shows that our worry is warranted. 47% of Americans don’t have emergency funds saved away in case of medical, personal, or professional disasters. The statistics show that nearly half of Americans can’t cover a $400 emergency expenditure.
We can extrapolate even more from this information.
#1) No Emergency Fund = More Debt
If you become seriously ill, you can lose quite a bit in terms of income and you may still have to pay medical expenses. If you lose your job, you won’t be able to cover your regular bills and will have to consider paying with credit cards, which can add up quickly. All of this causes more stress, which can put you in danger of (more) health issues. It can easily snowball out of control if you let it.
To combat this type of issue, you have to be proactive. Start your emergency fund as soon as possible to avoid these situations. If you’ve had even one experience with a large unexpected expense that you couldn’t cover, you’ve probably learned your lesson. Don’t force yourself to have to learn it twice.
#2) Hardships Are Becoming More & More Common
When the general public thinks of “emergencies”, they usually just picture medical expenses or the possibility of losing their job. While those are often the most difficult of crisis, there are other types of hardships that should be noted. These financial privations are far more common. Of the Americans that the US Federal Reserve polled, 24% of them indicated that they had at least one of these tough situations befall them last year:
- Health emergency
- Loss of a job
- Work hours cut
- Spouse/partner lost a job
- Spouse/partner took a pay cut
- Received a notice of foreclosure
Went through a divorce
- Small business had financial difficulties
- Death of primary breadwinner
Other examples of common financial strains aren’t normally thought of as a crisis:
- The cost of personal improvement (conferences, clinics, workshops, classes, etc.)
- Birth of a child
- Offered an opportunity which costs money
- Going back to school and the expenses that come with it
- Moving or buying a new home
#3) What Can Be Done?
It’s never too soon to start an emergency fund. If you are in debt or if you have no money saved, here are some steps that you can take in order to build a buffer between you and debilitating crisis:
- Don’t be ashamed of starting small. Sell some of your things so that you can start with $1500 in savings. Get creative and have fun while you make some extra cash for your emergency fund. Once that is saved, put it in a safe account and start adding to it. When you get extra (unexpected) funds, add it to your savings.
- Attack your debt with either the Snowball or Avalanche method – depending on your situation and debt.
- After you’ve accumulated money in your emergency fund for at least a year, consider passively investing to help aid in growth.
- Also consider having a running positive balance on your utility bills so that you can offset some payment issues if you run into an emergency. Instead of using your emergency fund to pay utilities, you can use it to pay a medical bill or to have your car fixed. While you do that, you don’t have to worry about paying for your utilities that month.
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