Sep 21, 2021 01:04 PM EDT
Following the pandemic, natural calamities, and major employment shifts, a startling new study on the online news site News Nation shows that 1 in 4 Americans don't have an emergency fund. What's more, those reportedly making under $30,000 were likely to have no savings at all. Of those in the study who did say they still had emergency savings left, what they have is reportedly worth less than three months of their salary.
What is an Emergency Fund Anyway?
For starters, an emergency fund is not the same as your investment fund, your savings, or your nest egg. Reputable finance site AskMoney explains that an emergency fund is money set aside to cover unexpected expenses. This can include sudden medical emergencies, living replacements, vehicular repairs, and changes in employment.
Note that not all emergency funds are the same. Its size varies from person to person, but generally speaking, it must cover up to six months worth of living expenses. Some important factors to help determine the appropriate size of an emergency fund are your current lifestyle, whether you have dependents or not (furry friends, included!), your work situation, and your debt and cash flow.
Why Do You Need an Emergency Fund?
Having an emergency fund not only provides you with financial security but also living stability. As we mentioned in our previous post on '2021's Worst Money Mistakes You Can Make with Your Salary', an emergency fund can protect and provide for you in case of a loss of income. On top of this, an emergency fund can also protect your other financial assets from being accessed in an untimely manner. For instance, rather than having to touch your retirement fund or selling a personal item to pay for sudden expenses, an emergency fund can cover this and leave your other assets untouched.
How Can You Start Building an Emergency Fund:
Open a high-interest savings account
Gone are the days when piggy banks were the safest place for your rainy day fund. Instead, your modern-day emergency fund is much better off in a liquid and safe state. Hence, when beginning your emergency fund, it's best to open a high-interest savings account. Unlike a long-term investment fund, these savings accounts are easy to access and typically don't have any penalties for early withdrawals. Plus, depending on the financial establishment you work with, you may even want to opt for an account that promises higher interest rates. Take note, though, that higher-interest accounts may mean your money is being invested in relatively "riskier" investments. However, so long as your bank assures that the amount of money you put in is always available to you-whether it has grown yet or not-then it's a viable and possibly, profitable, option.
Establish how much your emergency savings should be
As we said earlier, the exact amount of an emergency fund varies depending on the person. Before you start putting money aside, though, you must determine what the right emergency fund amount is for you and how long you plan to save up to reach this number. Much like how you'd plan to save for a new car, you'll also want to set a specific amount to be set aside at pre-determined intervals. One of the main things you'll have to take into account is your payables on updated essentials. This means your rent, food, contributions, and healthcare. For instance, since the recent report by the government agency U.S. Bureau of Labor Statistics shows that housing expenditures have increased by 3.5%, make sure that your emergency fund will be able to cover this increased cost, among others.
Rework your budgets to eliminate unnecessary spending
As of January this year, a report from CNBC showed that despite only 4 in 10 Americans having enough money set to cover an unexpected $1,000 bill, only 18% said they'd reduce their spending to put together the necessary amount. However, one of the easiest and most effective ways to start putting money into an emergency fund is to re-divert unnecessary expenditures towards it. For example, savings app Acorns says that the average American spends over $2,000 annually on coffee runs alone. By simply cutting your coffee spending in half, that's already more than one grand in your emergency fund.
Be patient with an emergency fund. Growing it isn't always fast, and it's definitely not as exciting as saving for a vacation or a new house. However, having an emergency fund does offer you the invaluable confidence that you will be secure even if the going gets tough.
For more saving tips, financial news, and money guides, check out our other resources on Money Times.
In today's digital world, more and more people are investing in cryptocurrencies. These digital tokens have exploded into popularity over the past few years, and have grown to the point that there are now nearly over 6,000 of them, according to Statista.
Following the pandemic, natural calamities, and major employment shifts, a startling new study on the online news site News Nation shows that 1 in 4 Americans don't have an emergency fund.
Generational wealth is a facet of wealth management that is often misunderstood. Labeled trust fund babies, rich kids, and lucky breaks, those who receive an inheritance from families are rare.
Social media has successfully made it to the mainstream consciousness of over half the global population. DataReportal's latest study shows that over 4.33 billion people worldwide are using some form of social networking site this year. That's why it's no wonder many tech companies are interested in investing or forming the next Facebook, Twitter, or YouTube to capture the hearts and minds of the general population.
Ease of access, freedom to choose in which to invest the money and lines of credit designed according to the needs of consumers, are some of the characteristics that have made consumer credit one of the most important financing products in the world’s market.
While researchers have suggested that individuals who base their self-worth on their financial success often feel lonely in everyday life, a newly published study by the University at Buffalo and Harvard Business School has taken initial steps to better understand why this link exists.
The younger generations are willing to put their money where their mouth is when it comes to sustainable living.
An international research team led by NUST MISIS has developed a new iron-cobalt-nickel nanocomposite with tunable magnetic properties. The nanocomposite could be used to protect money and securities from counterfeiting. The study was published in Nanomaterials.
Bank credit officers are more likely to approve loan applications earlier and later in the day, while 'decision fatigue' around midday is associated with defaulting to the safer option of saying no.
After graduating or leaving college, many students face a difficult choice: Try to pay off their student loans as fast as possible to save on interest, or enroll in an income-based repayment plan, which offers affordable payments based on their income and forgives any balance remaining after 20 or 25 years.