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  |   Business


Emergency Savings Hit an All-Time Low in the U.S.

A new survey shows most Americans’ rainy day fund won’t shield them from an unexpected emergency.

How would you handle your car breaking down or a sudden illness that takes you to the clinic?

If you’re lucky, you have some savings set aside to help cover these unexpected bills. Otherwise, you may end up asking yourself two things: what is a personal line of credit and how may it help me in an emergency?

It’s a task you may share with nearly one-third of U.S. adults. That’s how many Americans have nothing set aside for emergencies according to Bankrate’s latest Financial Security Index.

The poll, which examines wages, net worth, and debt to gauge financial confidence, shows a worrying trend in the country’s savings.

As it turns out, just 18 percent of Americans have the recommended six months’ worth of expenses in their emergency fund. This is the lowest this number has been in the nine years Bankrate has conducted this poll.

What if You Don’t Have an Emergency Fund?

Without emergency savings, you’re living life on hard mode. While you may have the cash on hand to cover everything in your budget, you may not have what you need in case a bill you didn’t budget for comes your way.

An empty emergency fund means borrowing money may be your only option.

A personal loan or line of credit is designed to help bridge the gap in an emergency, so they come in handy when all else fails.

Yet few financial products beat savings.

The luxury of savings means you’re spared interest or finance charges that may come with the average loan or line of credit. You also side-step any potential impact a loan or line of credit may have on your credit score.

How Much Do You Need in An Emergency?

Your cat swallows a rubber band, someone steals your winter jacket, or your car breaks down on the side of the road. As far as unexpected and costly emergencies go, this is only a small sample of what you might face.

When emergencies come in all shapes and sizes, putting a price on your next unexpected expense may be a challenge.

Without knowing what it is, or when it will arrive, it’s a bit like guessing the winning lottery numbers for the upcoming Powerball. Luckily, your rainy day fund doesn’t have to be this accurate to pay off.

While there isn’t an exact science behind emergency savings, there are some guidelines to help you understand what you need.

Generally, anywhere between three to six months’ worth of expenses is a good start. This may provide enough backup in case you’re dealing with a minor bill or short-term absence from work.

But for an emergency fund that’s shock-proof, some financial advisors suggest bumping up this goal to anywhere between six to 12 months of expenses.

Why Your Career Shapes Your Emergency Savings

Where you fall on this scale will depend on a lot of things, but your job title may have the biggest impact on your savings goals.

Naturally, those with low-paying careers may come up short covering an unexpected expense more often than those who bring home big paychecks. But high-earners may not fare any better if they have zero job security.

For example, federal workers recovering from last year’s furlough (and worrying about another government shutdown) may have more need for a bigger emergency fund than others.

People who are the sole breadwinners for their family may also benefit from larger savings, as do people living with chronic illness. Creating a cash cushion of a year may help them in case they face serious health setbacks or long-term unemployment.

How Do You Make Savings a Priority in 2020?

Ask yourself this question: what has stopped me from saving in the past?

Maybe, you didn’t think you needed a rainy day fund until it started pouring. Or perhaps, you don’t have enough cash to create your financial umbrella.

Make a Budget for the New Year

If it’s a lack of funds standing in your way, a budget is your answer. By tracking how you spend your money each month, you’ll be able to spot any bad habits that flush your cash down the drain.

As a general rule of thumb, you’ll want to spend 50 percent of your income on the essentials, and 30 percent on financial wants. This leaves 20 percent to put towards savings.

Be Prepared to Make Sacrifices

Are your percentages off? If you spend too much of your income on wants, keep an eye on non-essential spending like takeout, clothes, alcohol, travel, and entertainment. Sacrificing these things will free up cash you can put towards your savings.

If you make few splurges in the typical month, your job at freeing up cash is harder but not necessarily impossible.

Boost Your Income

There’s only so much number crunching you can do before you go cross-eyed. If there’s no way of wringing out another cent from your budget, you’ll have to find ways of earning more.

  1. Ask for a raise
  2. Look into picking up a part-time job in your spare time
  3. Start applying to better-paying jobs
  4. Monetize a hobby or skill to earn money with a side gig

Weather Financial Storms without Getting Doused

If you have less than a year’s worth of expenses in emergency savings, don’t panic. Every emergency fund has to start somewhere.

The important part is that you commit to building your fund with whatever cash you have available. Make savings a priority in the new year and set aside money each month.

Cultivate these savings until you can move into a high-yield savings account. Although you may not be able to predict when the next unexpected bill will arrive in your mailbox, you’ll be better prepared when it does.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes.

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