Life is full of unexpected situations — but what you can expect is for them to be expensive. Unfortunately, most of us don’t.
Personal finance website Bankrate recently released a survey revealing that 60 percent of Americans don’t have enough in savings to cover a $1,000 emergency room visit, or a $500 car repair.
Even though Americans aren’t prepared, they are aware of the importance of having emergency money stocked away.
According to the survey, 45 percent of Americans said they or their immediate family members had a major unexpected expense in the past year.
“I wish I could say it’s because people are smarter about it, but it’s really the fear factor,” certified financial planner and board ambassador for CFP, Carina Diamond said. “One little thing — a new roof, a medical emergency; can set you up for a financial disaster if you don’t have an emergency fund.”
Diamond says that having emergency money saved leave you much better off than borrowing from family members, or an IRA or 401(k), even if almost half of Americans don’t always have enough money left over to save after bills at the end of the month.
“It is a much better alternative,” Diamond said. “There is nothing as quick and free of negative consequences.”
Who uses their savings in an emergency?
The study also looked at when people who did have savings would use them for their intended purposes.
- 69 percent of millennials would bite the bullet and spend out of savings
- 43 percent of American adults without children will use their savings, compared to 35 percent of parents who would do the same
- 28 percent of the “silent generation” will charge it to credit
How do we prepare for a financial emergency?
Most of us are financially illiterate, but experts do recommend setting reasonable saving goals and cutting back on unnecessary spending.
Paul Golden, spokesman for the National Endowment for Financial Education in Dallas recommends setting aside small amounts to build up an emergency fund.
“Even $500 has proven to be a psychological benefit,” Golden said. “It improves people’s psychological well-being and shows you have the ability to set (and meet) an achievable goal.”
- 37 percent of Americans are willing to cut back on alcohol to save money
- 51 percent of millennials, specifically, were willing to cut back on alcohol
- 44 percent of millennials said they would be willing to cut back on coffee
“It’s not a matter of if but when an unexpected expense will pop up,” Golden said. “It’s only a matter of time.”
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