Did you know that 4 in 10 Americans can’t afford to cover an unexpected $400 expense? This leads to those individuals having to cover that expense by borrowing or selling something. Even though the overall financial health of Americans has improved, what hasn’t is our habits and behaviors.
Unexpected emergencies happen. Your car won’t start one morning, you break your arm, your child gets sick and need to find a way to cover the doctor visit bills. These emergencies are bound to happen and unfortunately 4 in 10 Americans aren’t financially prepared for it. So how can we help solve this problem and create financially prepared households?
The Reality Check:
Having an emergency fund isn’t for that couch you see in Crate and Barrel that you’re just dying to have (believe me, I almost convinced myself once)… This is where planning and budgeting comes into play. So, what constitutes as an emergency? They’re unexpected costs that would otherwise blow your budget or force you to resort to using a credit card. This is exactly what we want to avoid. So, we plan for the unexpected through our emergency fund.
The first step in getting an emergency fund in place is to make sure that money can be liquidated easily. The last thing we want is to be in the middle of an emergency with money we can’t get to. Making sure that the emergency fund is assessable but not assessable enough to want to spend it on non-emergency items. I suggest putting that emergency fund into your savings account, preferably one linked to your checking account. I bank with PNC and they’re system allows you to pull money from your savings through the click of a button without a few business day delays.
In order to save up for an emergency fund, we need to budget for it. After all of your expenses are settled by the end of the month, look and see how much money you have left over. If it’s more than $1,000 then congratulations, you have your emergency fund! If this isn’t the case, keep working at throwing as much money as you can towards your emergency fund! The quicker you can get your emergency fund in place, the closer you are to financial freedom!!