As a general rule, it’s smart to have at least 6 months of basic living expenses saved up in an emergency fund. These cash reserves can help you cover an unexpected expense, like a car repair or medical bill, without taking out a loan or using a credit card.
But many Americans are not following this rule. We asked people about their savings and debt in a recent Freedom Debt Relief survey, and it turns out that a surprising number have no emergency fund at all. And those who do have one may not be saving enough. Take a look at the numbers and why it’s so important to be able to cover emergency expenses.
How much are Americans saving?
Although the importance of having an emergency fund is widely accepted, only 53% of respondents reported that they actually have money set aside to cover emergency expenses. And even then, most aren’t saving enough to cover the recommended 6 months of expenses. In fact, a full 58% of respondents say they have less than $5,000 saved.
Shockingly, 51% of Baby Boomers have less than $5,000 saved even though they’ve reached or are quickly approaching retirement age. And prospects for Gen X seem even grimmer, with 62% having less than $5,000 in checking and savings combined.
What’s the risk of saving so little?
Without having savings to pay for unexpected costs, Americans are often forced to rely on credit cards to handle these expenses. And many Americans are already spread so thin that they use credit cards for simple everyday expenses, like food and utilities.
Falling back on credit cards for everyday expenses may be fine in the short-term, especially if balances are paid in full each month. But long term, relying on credit cards without having any savings could put people in financial danger. If they experience a reduction in their income or another unexpected expense, they might not be able to pay bills in full and could be be forced to enter a cycle of high-interest debt and fees they may not be able to get out of.
Do you have enough savings?
Americans seem to understand this danger, because our survey also shows how credit card debt takes a huge toll on their emotional well-being. In fact, 46% of those surveyed stated that they felt very stressed about their debt and 20% said they can’t sleep at night because of it. Here are some red flags that your debt might be getting out of control:
- You can’t pay off your balance and are carrying credit card debt month to month
- You constantly worry about getting your next paycheck so you can pay your credit card bills
- You’re having trouble making your minimum payments
- You’re maxed out on one or more of your credit cards
- You have already fallen behind on credit card payments
If you’re so overwhelmed by credit card debt that you can’t sleep at night, it may be time to get debt help.
How to save more for emergency expenses
If you, like so many Americans, need to increase your savings, there’s no time like the present to get started. Start by taking a hard, detailed look at all of your expenses. There are usually many areas where you can cut unnecessary spending, sending that money to your emergency fund instead. Between cutting out cafe trips, excessive dining out, gym memberships, subscriptions, and the like, you’ll be surprised how quickly your emergency fund grows. Of course, the other side of the savings coin is increasing your income. If you’re able to add a side job or sell some of your things, your savings will grow even faster.
Give your finances a boost
Learning how to deal with debt, money, and saving for your future is important, but it doesn’t need to be hard. At Freedom Debt Relief, we’ve developed a simple to follow guide to help you find the tools you need to move to a better financial future. Get started by downloading our free guide right now.