Do You Have Enough Savings for an Unexpected Expense?

by Miranda Marquit · 0 comments

I remember the days when I was a struggling student without much income, and without much savings. I also had a great deal of debt. If a $500 car repair came up, I had to ask my parents to lend me the money. Now, things are a little more different. I’m more fortunate in that I have savings built up, I’ve paid off the credit card debt from college, and my husband and I are building a retirement nest egg. If I needed to come up with money for that car repair, or for a $1,000 visit to the emergency room, I could.

Unfortunately, not all Americans are in that position. In fact, according to a recent Bankrate survey, most Americans wouldn’t be able to handle such an unexpected expense. The survey finds that more than 60 percent wouldn’t have the money available. Are you among that more than 60 percent of Americans?

Where Do you Get Your Emergency Money?

When you run into an unexpected expense, where does the money come from? According the survey, the top three ways that Americans would raise the money for an unexpected expense are:

  1. Reducing spending in other categories (26 percent)
  2. Borrowing from family or friends (16 percent)
  3. Using credit cards (12 percent)

All of these methods come with their own pain. Of course, using credit cards comes with the most expensive long-term consequences, especially if you can’t pay of the debt quickly. In my case, I used to borrow from my parents. And, truth to tell, if I’m in a sticky cash flow spot, I’ve asked my parents for a little help — and then promptly paid them back.

However, that doesn’t negate the fact that I should be working harder to make sure that I have the money available for emergencies without turning to other sources. It’s also a disappointing commentary on our society that even $500 is likely to undo many households.

One of the more interesting items in the survey is that not even those many of us would consider “well off” have enough set aside to cover unexpected expenses. According to the Bankrate survey, only 62 percent of those who make more than $75,000 a year have enough. It might be time for a priority switch if you make more than $75,000 a year, but don’t have $1,000 in a savings account, ready to be called into service for a car repair or to buy a new appliance if your old one breaks down.

As we start a new year, stop a moment and think about whether or not you could handle an unexpected expense. Can you pay the $500 deductible required by your homeowner’s insurance? Would you be able to handle $800 for the purchase of a new refrigerator? If the answer is no, think about making it a goal to build your short-term emergency fund to $1,000 this year. If you set aside $100 a month, you could meet that goal in 10 months. That’s about $5 every weekday. You can do that by cutting your cable, brownbagging your lunch, or taking any number of small steps to cut unnecessary expenses.

What do you think? How do you pay for unexpected expenses?

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