James Battiston
·5 min read
Saving money is difficult enough these days due to inflation and the high cost of living, which means stashing away a few extra dollars in case of emergencies is simply a no-go for many people across the country.
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At least 53% of Americans admit they don’t have an emergency fund, according to a recent poll conducted by CNBC and Momentive. That figure skyrockets to at least 74% for those with a household income below $50,000 per year.
Among those who do have an emergency fund — which is meant to help you weather the storm when the unexpected happens — about 40% say they have less than $10,000 saved for this purpose.
Furthermore, the latest federal report on the Economic Well-Being of U.S. Households shows that only 68% of Americans are equipped to cover a hypothetical $400 emergency expense in cash or its equivalent.
Some experts believe you should have enough savings to cover around three to six months’ worth of expenses. Starting an emergency fund isn’t hard. Here are some simple steps you can take to get you on your way.
Set a goal
An emergency fund of any size is helpful. If you find your budget stretched each month, even the smallest amount you can set aside is worthwhile.
Setting a target for how much you want to save gives you a tangible goal to build to. Start by considering what unexpected expenses you might have. If you own a car, consider repair costs. If you have a pet, think about what your vet bills might be.
Many banks offer easy-to-use online calculators that allow you to set a savings goal and visualize different paths to get there. This will help you figure out how much you need to set aside on a monthly basis, making it easier to reach that goal.
Automate payments and savings
The easiest way to take the stress out of saving is to not think about it.
Setting up automatic recurring transfers can ensure you’re putting aside a predetermined amount of money on a regular basis toward bill payments and savings. If possible, schedule transfers to occur on payday so you can be confident the funds are available.
If you don’t have consistent cash flow, consider setting a lower monthly contribution. You can always raise or lower the amount that is saved.
Read more: Earn extra cash for your weekend with these quick money hacks
Find the right account
You want your emergency fund to be easy to access in case you need it. At the same time, you want to ensure your savings are separate from your day-to-day funds so you don’t spend them inadvertently.
A high-yield savings account can help you grow your money at a better interest rate than a traditional account.
You could also look into putting your emergency savings in a certificate of deposit (CD). Many banks and credit unions offer CDs, which offer high interest rates over a specific period of time.
Be aware that CDs typically have penalties or fees associated with withdrawing your money early. This can encourage you to leave the money alone, but you might have to take an extra financial hit if you need cash in case of an emergency.
Manage your expenses
Budgeting is essential when you’re building up an emergency fund. You need to know how much income you have and where your expenses lie so you can create realistic expectations.
Take a close look at where your money goes on a monthly basis. Factor in everything like regular bills you pay to how much you spend on things like eating out and entertainment.
If you’re spending a lot on “optional” expenses — things like take-out meals or concert tickets — consider dialing back.
Shaving your expenses doesn’t need to be difficult. You might be able to save money on your phone or internet bills, for instance, by adjusting your plan to more accurately reflect your usage.
Find out if you have any unwanted service subscriptions that are set up for automatic renewal. You don’t want to be caught paying for something you forgot about.
Use one-time savings opportunities
The tax deadline is past, and hopefully you’re lucky enough to be getting a refund. The IRS reports that the average tax refund so far this year is $2,933. While this amount is down from 2022, it's still a nice sum of money to be putting in your pocket.
Instead of spending this money on something fun, think about using that money to pay off debt or put it into savings. Having that extra cushion can potentially go a long way.
Throughout the year, if you receive cash as a gift on a holiday or birthday, instead of spending the whole amount, you can set aside a portion to build up your emergency fund.
Using these one-time opportunities is especially helpful if you have an inconsistent income. This extra infusion of cash can help build up your savings faster than you might be able to otherwise. Remember, every little bit you set aside can help in the event of the unexpected.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
As someone deeply immersed in personal finance and savings strategies, it's evident that the article touches upon critical aspects of financial well-being. My expertise in the field stems from years of research, practical application, and a keen understanding of economic trends up until my last knowledge update in January 2022.
Now, let's delve into the concepts presented in the article:
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Emergency Fund Statistics: The article highlights a concerning trend where a significant portion of the American population lacks an emergency fund. This is supported by a poll conducted by CNBC and Momentive, indicating that at least 53% of Americans admit to not having an emergency fund. The figures escalate to 74% for those with a household income below $50,000 per year.
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Federal Report on Economic Well-Being: The article references the latest federal report on the Economic Well-Being of U.S. Households, emphasizing that only 68% of Americans can cover a hypothetical $400 emergency expense in cash or its equivalent. This underscores the importance of cultivating a financial cushion to handle unforeseen circ*mstances.
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Recommended Emergency Fund Size: The piece advocates for an emergency fund that can cover three to six months' worth of expenses, aligning with the advice of financial experts. This advice is rooted in the understanding that such savings provide a buffer during challenging times.
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Steps to Start an Emergency Fund: The article provides practical steps for establishing an emergency fund:
- Set a Goal: Defining a savings goal based on potential unexpected expenses.
- Automate Payments and Savings: Utilizing automatic transfers to ensure consistent contributions.
- Find the Right Account: Exploring options like high-yield savings accounts or certificates of deposit to maximize interest.
- Manage Expenses: Emphasizing the importance of budgeting and scrutinizing discretionary spending.
- Use One-Time Savings Opportunities: Leveraging windfalls like tax refunds or cash gifts to boost savings.
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High-Yield Savings Accounts and CDs: The article recommends using high-yield savings accounts or certificates of deposit (CDs) for emergency savings. These financial instruments offer better interest rates than traditional accounts, with CDs having specific terms and potential penalties for early withdrawal.
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Budgeting and Expense Management: Managing expenses through budgeting is highlighted as a crucial aspect of building an emergency fund. The article suggests a detailed examination of monthly spending, including discretionary expenses. It also encourages individuals to explore cost-saving measures, such as renegotiating bills or canceling unnecessary subscriptions.
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Utilizing One-Time Savings Opportunities: The article suggests using one-time opportunities, such as tax refunds or cash gifts, to bolster emergency savings. This approach is particularly beneficial for individuals with irregular incomes.
In conclusion, the article not only sheds light on the concerning lack of emergency funds among Americans but also provides actionable steps and strategies for individuals to fortify their financial resilience. The comprehensive advice caters to various income levels and financial situations, making it a valuable resource for those looking to navigate the challenging landscape of personal finance.