Forget about the roller coaster stock market for a minute. Forget about what’s going on with your 401k.
Are you prepared to face a personal financial emergency today?
Many Americans are living on tight budgets thanks to the ongoing sluggish economy. But according to research by the National Foundation for Credit Counseling, most folks in the U.S. can’t afford to have a decent emergency fund.
The NFCC released findings from a survey this week indicating 64% of American’s wouldn’t be able to afford an unexpected $1,000 emergency expense.
Another study by the National Bureau of Economic Research found half of Americans would have a hard time coming up with $2,000 in a pinch.
The biggest problem with living paycheck to paycheck is that if you get caught off-guard by things like car and home repairs or medical bills – you could end up creating a hole that will be difficult to dig out of.
Only 36% of the 2,700 people interviewed by the NFCC said they’d be able to access savings in case of an emergency. The rest said they’d have to find the money elsewhere.
17% said they’d borrow from friends and family. This is probably the best idea, but owing money to people in your life can also cause plenty of tension. Depending on who you’re borrowing from – they may or may not ask you to pay interest as well. But you never know how someone in your life may hold a debt over your head.
17% said they’d put off other expenses or payments like paying less on credit cards or other loans. 12% said they’d sell or pawn possessions – another decent option but not always viable for everyone.
9% said they would have to take out a loan, and another 9% said they’d take a cash advance on a credit card. With either of these options – you’re probably going to end up paying more for that emergency expense than if you’d had the money up front.
Sometimes you can see those emergency situations coming – but we ignore them or procrastinate.
We think we can pretend they aren’t there at all. Maybe the roof will fix itself. Maybe this funky green thing growing on my back will just go away on its own. Maybe I’ll win the lottery!
Take the example of 35 year-old Allyson Curtis from a story on CNNMoney.com. She was unemployed for three months, but had to use credit cards to pay for everyday expenses, and ended up with five-grand in credit card debt.
Curtis said she’s putting off dental work as well as fixing a crack in her car’s windshield. But ignoring things like that can also cost you more in the long run.
Having some sort of financial safety net is one of the most important moves you can make for your personal finances.
Before you start any other sort of saving – you should have that emergency fund set aside.
In fact – some personal finance experts suggest discontinuing investing in retirement savings until you have a decent emergency fund built up.
For people living paycheck to paycheck – it may seem impossible to find a way to start saving. But for most of us…if we look closely enough at our budgets, there are ways to cut back.
Look for those unnecessary expenses that you could eliminate at least temporarily. How much would you be able to set aside if you cut out premium cable for one year? Try making coffee at home instead of buying it at Starbucks.
Look for ways to earn a little extra cash that you can stash away. Jump at the chance to work a little overtime, get rid of some of the junk in your house on eBay BEFORE the financial emergency happens.
When you happen to get a little extra money – as a gift, from your income tax refund, or from winning your fantasy football league – instead of celebrating and spending have some self control and stick it in your emergency fund.
You may have to take some baby steps on the road to building up your savings. But the benefit is you won’t constantly be worried about what might happen next because you’ll be financially prepared.
Check out the video below for some other interesting tips on how to save up some dough!
What do you do when you need extra cash? Leave us a comment and let us know!
+Kasey Steinbrinck writes about personal finances and the economy for Check Advantage. The online company offers cheap checks including QuickBooks checks for small businesses and cool personal checks.