Do you have emergency savings? After the Great Recession, we all realized the importance of having this fund in your account. You never know when an emergency will strike. It is important that you have the finances that will help you cope with that unexpected expense.
If you are unsure about how prepared you are when it comes to emergencies, you need to start paying attention to your financial situation. You do not want to be caught unaware when a financial crisis strikes. You cannot afford to be ignorant about your money because so many lives can be destroyed because of money problems.
According to an article published on NewsMax, the culture of the traditional American family is changing. The main reason for this change is the economy. As the economic circumstances of the country changes, so does the structure of the family. The article cited these notable changes:
- 40% of children are born to unmarried couples – 8x more than those in the 1960s. (Pew Research Center study)
- 40% of American households are being financed by the mother – either as a single mom or a married mother earning more than her husband. (Pew Research Center study)
- There is a decrease in married adults today, which is only half of the statistic 50 years ago (72%). This is blamed on the fact that men are no longer viewed as the breadwinner in the family. That means women are no longer inclined to look for marriage to gain financial support. (NBC News Report)
These statistics show that money is powerful enough to change what we perceive is the norm in our society – especially in the family. In fact, a lot of divorced couples have admitted that one of the main reasons why their marriage failed is because of money. If you are not careful, financial problems can bring about a lot of negativity in your life.
The truth is, there is no way that you can stop money problems from happening. For instance, you may be very careful about your vehicle but an encounter with an irresponsible driver can cost you a huge bill in the auto shop. You can be very careful about living a healthy lifestyle but one accident can land you in the hospital or unable to work for a couple of weeks. But despite this reality, there is a way that you can cushion the blows that these money problems can bring. You can call them, emergency savings.
How much should you have in your emergency fund? At least $2,000
Also known as an emergency fund, this is the cash that you can use anytime that something happens that is not within your budget. Ideally, this is to be used only for emergencies. The definition of that will depend on your. For some people, it can be as trivial as that gift that you have to pay for after a cousin gets married. Or it can be something more serious like a trip to the ER.
Regardless of how you define an emergency and the rules you will set in the use of your funds, the fact remains that it is important to have emergency savings. The question is, how much should you put aside?
PewTrusts.org, revealed that the median expensive emergency expense of families is at $2,000. If you base it on this figure, you can assume that you probably need this amount in your funds. Take note – this is just one expense. What if you are one of the unlucky few who happen to have several emergencies happen one after the other? Do you think your $2,000 emergency savings can save you? Probably not.
The study done by Pew Charitable Trusts reveal a lot of things about how families cope with financial emergencies. Here are a couple of highlights from the study:
- Financial security is defined as requiring more than having the money to pay for your bills or even to increase your savings. It means being prepared for emergencies.
- 4 out of 10 households find it hard to save money some months because of unexpected expenses.
- 6 out of 10 households have gone through at least one financial emergency in the past 12 months from the time the survey was done.
- The rate of financial setback is similar across age, race and income level. High-income households spend three times the amount that low-income households do when it comes to expensive emergency expenses.
- With the median expensive emergency at $2,000, the average household would need to spend half of their monthly income to finance it.
- After an expensive emergency, more than 50% of households are struggling to make ends meet. Almost 50% are not yet recovered when the survey took place (at least 6 months after the emergency).
- Most of households resulted in lower savings and more credit card debt after going through a financial emergency.
- The median household had savings that are almost $4,000 lower after the expensive emergency. They are also more likely to carry a balance on their credit card debt compared to the households who haven’t gone through an emergency.
- The report indicated that all the financial losses were not necessarily from the emergency but the ripple effect of events usually led to a higher loss.
- Almost half of the households who went through a financial emergency had to deal with more expenses than their income.
This survey reveals a lot of things about families going through an emergency situation. It also gives us a glimpse of what happens when you do not have emergency savings.
Take note that having money set aside is not enough. You need to make sure that your reserve fund is enough because if you have less, that can still give you some financial headaches. You do not want to be caught with insufficient emergency funds – especially when you least expect it.
30 tips to increase your savings for unexpected situations
You have to understand that building your emergency savings should not be dependent on how much money you are earning. It is all about how you manage your money. According to a study done by Bankrate, although the income of the American worker is rising, they are still not putting aside money for the unexpected expenses. When the survey asked about emergency funds, almost 3 out of 10 said that they had none. This is the highest percentage of those who admitted that they do not have savings for emergencies.
While building your emergency savings may not happen overnight, there are a lot of things that you can do to help it grow. You just have to start as soon as possible. If you do not have a single cent in this fund, then the urgency is so much greater. It is very important that you set yourself up to be more financially stable. An emergency can happen anytime and anywhere. The little savings that you can do here and there will add up to a lot.
Here are 30 things that you can do to help grow your emergency funds.
- Monitor everything that you spend and make sure the total is lower than your income.
- Identify and get rid of the expenses that are not necessary.
- Negotiate the interest on your credit card to make it lower – and any other debts that you may have that will allow you to.
- Decide on an amount that you can save and automate that savings.
- Declutter your house and sell the stuff that you no longer need.
- Put any change in your pocket in a piggy bank or jar each night.
- Put a coin in your jar each time you do something that you want to change (e.g. after swearing).
- Brown bag your lunch in the office.
- Plan your meals so you can make sure that leftovers are not wasted.
- Use coupons when doing your groceries.
- Call your subscriptions and ask for a plan that will allow you to pay less.
- Talk to your boss and ask for a raise.
- Ride your bike to work to save on gas.
- Do not go beyond 65mph when driving so you can save on gas.
- Drink water when you dine out.
- Opt to buy store-brand food because they tend to be cheaper.
- Always buy generic medicine when available.
- Get a part-time job.
- Create a small business that can help you earn on the side.
- Use cash-back rewards card.
- Commit to put aside a specific amount each week.
- Do not use your credit card beyond the amount that you can pay at the end of each month.
- Stop hiring people to do something that you can accomplish yourself.
- Borrow instead of buying.
- Reuse things for something that they are not made for (e.g. use an empty plastic bottle as a flower pot).
- Buy items that will not perish in bulk when it is on sale.
- Try to get something for free if you can arrange it.
- Monitor all your financial accounts to check the fees and charges.
- Work longer hours if it is allowed.
- Do not be ashamed to negotiate.
Any savings that you will get from these – regardless if they are mere coins, should be strictly placed in your emergency savings. It helps if you treat your savings like a bill so you will diligently allocate money towards it.