Wednesday, February 28, 2007

Emergency Funds

You'd think when a story hits national news, it would wake people up. Awhile back, the news was that Americans' saving was the lowest since the Great Depression. Nobody seemed to pay much attention to it, but the story is back.

Now they're saying that only 40% of Americans have emergency savings.

That's sad.

When was the last time you went to a mall and just watched people? They're all over the latest fashions, the sparkliest (is that a word?)jewelry, the cutest puppy or the most popular movie.

The same people don't have enough money to put into savings.

I could quit right there and make a point, but that doesn't get us anywhere. According to an article no longer available at CNN, 19% of people under the age of 24 and 23% of those making less than $25,000 have emergency savings. You might argue that those people generally have less discretionary income and therefore less to save.

"Discretionary" is the key word, though. Savings should not be taken from discretionary funds. If you take money from what is set aside to spend on needs and wants after the bills are paid, you'll feel as if you're shorting yourself, whether you are or not.

Make putting money aside for emergencies like one of the bills. Pay it before you spend what's leftover. It isn't something you can tack on to your spending plan and hope you have enough to pay it.

These two groups are also the ones who stastically will need emergency funds the most because their homes, cars and lifestyles are susceptible to minor emergencies - which can escalate into major ones if there are no funds at all to back them. It's especially important for them to build up a fund for unexpected expenses.

But the worst part of the story? 42% of Americans who make $75,000 don't have emergency savings, either! A little less than half! Granted, if you have enough "discretionary" income so that you don't worry about a repair bill of a few hundred or even a thousand, emergency savings don't seem so necessary, but there could very well come a time when everything hits at once... and then what do you do?

Most Americans reach for their credit cards. Ouch. Instead of making money by having an emergency savings account funded, they're willing to pay money to a credit card company.

It seems that money sense doesn't necessarily increase with wages.

Let me sum it up: If you don't have an emergency fund, for heaven's sake, start one. It will make a big difference the next time you need it - and you will need it. The unexpected is a part of life. If you do have an emergency fund, good for you. Keep it going and keep adding to it. If/when you get over your goal, transfer funds into another goal specific account or retirement fund.

Don't be one of the 60% who will be caught unprepared when your car needs a new transmission or the refrigerator dies or your plumbing disintegrates. Being ready for these things is possibly the best thing you can do to your overall finances.


  1. I doubt very seriously that even 40% of American's have Emergency Funds. I don't think I even know half a dozen people who live within thier means, let alone have savings of any kind:(

  2. I'm going by what was posted in the CNN story. The story also states that "The nation's personal savings rate for 2006 was a negative 1 percent." Maybe more to your experience. Of course. But who really knows?