Life has a way of surprising people in a less-than-ideal fashion. You might head over to your parking spot to drive to work, only to find that your car suddenly won't start. Or, you might wake up craving a nice, hot shower only to realize that overnight, your water heater seems to have given up on doing its job.
It's for reasons like this that it's so important to have an emergency fund. You just never know when life might throw you a curveball. And if you don't have savings, you may have no choice but to charge a surprise expense on a credit card and pay off the balance over time, all the while accruing interest and stressing about it along the way.
A recent SecureSave survey found that 63% of Americans could not cover a $500 emergency expense by tapping their savings. So if you fall into that category, it's important to take steps to build up cash reserves -- even if it takes a while to get to a place where you have a solid cushion.
You don't want debt hanging over your head
Credit card debt -- or any type of debt, for that matter -- can be expensive and stressful. And when you carry a balance on a credit card forward, you run the risk of accruing lots of interest that only makes your debt harder to pay off.
Case in point: Let's say you're forced to charge a $3,000 home repair on a credit card with a 20% APY. If it takes you three years to shed that balance, you'll end up spending a little more than $1,000 on interest alone. Ouch.
That's why it's so important to have some emergency savings on hand. A $3,000 savings account balance may not be doable for you in the near term. But it's important to save something so smaller expenses don't immediately drive you into debt.
The easiest way to build cash reserves
Saving money is not an easy thing to do. If it were easier to save, perhaps more Americans would be in a position to cover a $500 unplanned expense with relative ease. But a good way to go from minimal or zero savings to a more robust balance is to put the process on autopilot.
Suze Orman, who co-founded SecureSave, insists that "the best way to save is to automate it." Orman says that for people who don't have an emergency savings account through an employer (which is the case for many workers today), a good bet is to set up an automatic transfer from checking to savings every month.
And it doesn't have to be a massive sum, either. If you can only swing $10 a month now, do that. And if, come January, you get a raise and can then afford $30 a month, ramp up.
"You have to start somewhere," says Orman. So don't be discouraged if you're building up your cash reserves slowly. If you start automating your savings now, you might have $100 in the bank by the end of the year. That's something to be proud of if you're starting with $0.
All told, it's important to put yourself in a position where you can cover the occasional unplanned bill. Automating the process could lead to a much-improved financial picture for you -- and a lot less stress to boot.
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FAQs
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Why should you have a $500 dollar emergency fund? ›
Having a reserve fund for financial shocks can help you avoid relying on other forms of credit or loans that can turn into debt. If you use a credit card or take out a loan to pay for these expenses, your one-time emergency expense may grow significantly larger than your original bill because of interest and fees.
What percentage of Americans can't afford a $400 emergency? ›
The SecureSave study found a shocking 67% of Americans don't have enough money saved to cover that same hypothetical unexpected $400 expense. Like the Fed study, a good number of SecureSave survey respondents (54%) found their savings have decreased in 2022.
What percentage of Americans can t cover a $1,000 emergency without going into debt? ›
Fewer than half of Americans, 44%, say they can afford to pay a $1,000 emergency expense from their savings, according to Bankrate's survey of more than 1,000 respondents conducted in December. That is up from 43% in 2023, yet level when compared to 2022.
How many Americans have less than $500? ›
A recent survey of over 1,000 Americans found that nearly 50% have $500 or less in their savings accounts.
How much do most Americans have in an emergency fund? ›
The GBR study revealed that half don't have any emergency savings at all. Those who do are most likely to have $1,000 or less, which isn't nearly enough to get the typical household through a single month — or possibly even a single vehicle breakdown or home repair. Another 11% have between $1,000 and $3,000.
How to save a $500 emergency fund? ›
Steps to Build an Emergency Fund
- Set several smaller savings goals, rather than one large one. Set yourself up for success from the start. ...
- Start with small, regular contributions. ...
- Automate your savings. ...
- Don't increase monthly spending or open new credit cards. ...
- Don't over-save.
To prepare for income shocks, many experts suggest keeping enough money in your emergency fund to cover 3 to 6 months' worth of living expenses. So if you spend $5,000 per month, your first emergency fund savings milestone should be $2,500 to cover spending shocks.
Is the American emergency fund real? ›
The American Rescue Plan Act of 2021 established a new $1 billion Pandemic Emergency Assistance Fund to assist needy families impacted by the COVID-19 pandemic. States, the District of Columbia, tribes operating a tribal TANF program, and all five U.S. territories are eligible to receive funds.
How many Americans have 100k saved? ›
14% of Americans Have $100,000 Saved for Retirement
Most Americans are not saving enough for retirement. According to the survey, only 14% of Americans have $100,000 or more saved in their retirement accounts. In fact, about 78% of Americans have $50,000 or less saved for retirement.
When faced with a hypothetical expense of $400, 68 percent of all adults in 2021 said they would have covered it exclusively using cash, savings, or a credit card paid off at the next statement (referred to, altogether, as "cash or its equivalent").
How many Americans live paycheck to paycheck? ›
Our survey revealed that over 66% of Americans report living paycheck to paycheck. A recent Bureau of Labor Statistics weekly earnings report indicated a 3.5% year-over-year increase in median weekly earnings for the first quarter of 2024.
Is a millionaire's best friend? ›
It may sound like an intimidating term, but it really isn't once you know what it means. Here's a little secret: compound interest is a millionaire's best friend. It's really free money.
What is the 50 30 20 rule? ›
The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.
Is $1000 enough for an emergency fund? ›
Starter emergency fund: If you have consumer debt, you need a starter emergency fund of $1,000. This might not seem like a lot, but it's just a temporary buffer while you pay off that debt. Fully funded emergency fund: Once that debt's gone, you need a fully funded emergency fund of 3–6 months of expenses.
How many Americans have 1000 dollars saved? ›
While nobody really wants to tap into their emergency savings, most Americans couldn't even afford to do so if they had to. A stunning new Bankrate survey of 1,030 individuals finds that more than half of American adults (56%) lack sufficient savings to shoulder an unexpected $1,000 expense.
What percentage of people stated they would not come up with $400 for emergency expenses without borrowing money or selling a possession? ›
YouGov found that today, 51% of respondents said they would exclusively cover $400 emergency expense completely using cash or its equivalent (cash in a checking or savings account and/or using a credit card that they pay off at the next statement), and 49% would not cover a $400 emergency expense using cash or its ...
How many Americans struggle to pay bills? ›
According to the 2024 Financial Literacy Survey by GOBankingRates, 13% of Americans do not currently bring in enough money to cover their bills, and 46% barely bring in enough to cover their bills.
How much money is enough for emergency? ›
While the size of your emergency fund will vary depending on your lifestyle, monthly costs, income, and dependents, the rule of thumb is to put away at least three to six months' worth of expenses.
