In a recent survey, a simple question was asked, “If you were to face a $2,000 unexpected expense in the next month, how would you get the funds you need?” Alarmingly, of those polled, nearly 50% responded that it would be unlikely that they could secure the funds.
This study suggests that half of all Americans do not have the financial resources to manage a small financial crisis such as an unexpected car repair, home repair, medical expense, legal expense, etc.
This study parallels another recent study posted by the Wall Street Journal (wsj.com)– that only 35% of Americans have enough emergency savings to cover three months of living expenses.
“Set your houses in order. If you have paid your debts, if you have a reserve, even though it be small, then should storms howl about your head, you will have shelter for your wives and children and peace in your hearts”
-Gordon B. Hinckley
These percentages clearly suggest that many American families are ill-prepared in the event of a financial emergency. These studies also illustrate the reasons why so many Americans find themselves deeply in debt and financially strapped. In the event of an emergency, Americans turn to credit cards, home equity lines-of-credit, and borrowing from friends or family members. In some instances Americans turn to extreme measures to find money to cover emergencies such as pay-day loans and pawn shops.
This is not a good plan. Many of us are living on the edge and are just around the corner from a devastating family financial crisis. Could you imagine what would happen in the event that there was a job loss and you were unemployed for up to six months with no means of an income? According to these studies, very few American families could cope.
Saving money for an emergency is a fundamental step in winning financially and caring and providing for your family. If you do not have an emergency savings, you need to get one NOW!
A recommended beginner emergency fund is $1000. This will give you enough savings to cover most small emergencies while you work your way out of debt and until you are able to save more money. After you’ve paid off all your debts (not including the home mortgage) you can increase your emergency savings to 3-6 months of your household expenses. Imagine the peace having this type of emergency savings will give you and your family.
Ways to build an emergency cash reserve:
- Sell stuff (ebay, craiglist, KSL.com, garage sale, etc.)
- Get an extra job- use your unique knowledge and skills to create extra income
- Cut expenses in your budget to fund your emergency savings
Do not go another day unprepared and get your emergency fund in place today. But remember, your emergency fund is for EMERGENCIES ONLY.
