In a sad sign of the times, a recent survey found that a majority of Americans do not have enough cash in savings to be able to deal with just a $1,000 emergency expense. Considering most of us will face an unforeseen expense this large or larger in our lives, this statistic is very, very troubling.
The survey, which was done by the National Foundation for Credit Counseling (NFCC), found that 64% of Americans would have use something other than money on hand in order to be able to cover an unexpected $1,000 bill.
The largest number of close to 2,700 respondents, 36 percent, said they would tap their savings account to fund the unplanned expense. Utilizing rainy day funds for an emergency is exactly why a person saves, to protect them against the unknown. However, the remaining 64 percent are in a much different situation, living on a slippery financial slope.
The survey revealed that to resolve the problem, 17 percent of respondents indicated they would borrow the money from friends or family. Perhaps even more troubling is that another 17 percent said they would neglect existing obligations in order to satisfy the emergency need. This option can easily snowball out of control and have serious consequences. The next highest number of responses was in the category of selling or pawning assets, with 12 percent choosing this option. The resolution options of taking out a loan or obtaining a cash advance from a credit card were each selected by the least number of respondents, nine percent [each, combining for 18% in total].
These are certainly troubling statistics and underscore the importance of making sure you establish some sort of an emergency fund. After all, it’s not that hard to see how a random $1,000 expense can pop up once or twice per year – your car’s transmission needs to be replaced, your roof springs a leak, your refrigerator stops working, you break an arm and insurance only covers a portion of your out-of-pocket expenses… the list goes on and on.
So, what do you do if you don’t have an emergency fund? Start building one today!
The most straight forward way to do this is to combine slashing your unnecessary expenses – unused gym membership, premium cable channels, dining out, etc. – with living a frugal lifestyle – clipping coupons, finding free entertainment, hitting up the library, etc. – and then taking all that saved money and putting it into a savings account that you absolutely, positively do not touch.
This, of course, assumes that you’re not heavily in debt, in which case you should split the saved money between paying down your debt – high interest consumer debt, in particular – and building your rainy day fund.
After a few months you will hopefully you will have built a sizable enough fund that you could take on an unforeseen $1,000 expense without having to take drastic measures.
What do you think about this survey? Leave your comments below and, as always, please share this post using the social bookmarking buttons below – especially Facebook and Twitter.