Sock Away Cash for Emergencies
Sock Away Cash for Emergencies
Like the brakes go out on your car or the water heater conks out -- how would you pay for it?
Do you have an emergency stash of money that you could tap into or would you have to pay for it by credit card and add to your current debt?
You often hear about the suggestion of financial planners and counselors that you should have an emergency fund of three to six months' worth of living expenses socked away.
But realistically, there are probably few people who actually have done that. If you have, kudos to you.
Most people probably scoff at the thought of such a hard goal and instead do nothing.
That's not healthy, either. It'd be great if we could get to a place where we have that three to six months' worth of living expenses for a true long-term emergency, like a lost job or an illness.
A more realistic goal is to start somewhere. Start with the goal of short-term emergency fund of $1,000 to $2,000.
Research done by America Saves, a national initiative to encourage Americans to save money with a local counterpart called Cleveland Saves, shows that consumers have an average of $2,000 in unexpected expenses every year. It's something they don't plan for, said Nancy Register, national director for America Saves.
"Depending on your income level, those expenses are probably more or less like $400 to $600 a pop, but universally, consumers reports it's about $2,000 a year," said Register, who also is associate director of the Consumer Federation of America in Washington D.C.
"We know this happens. We know that people lose sleep because they are worried about being able to pay those expenses. We know they didn't pay attention at work. We know they lose productivity. Some people report it makes them sick. This is critical that people save," she said.
Yet people don't.
A recent survey found that three out of every four Americans say they aren't saving as much as they should.
Seventy-five percent of the 2,400 adults surveyed by the Pew Research Center's Social & Demographic Trends project said they weren't saving enough money. The results were the same for the whole spectrum of income levels, from the poor to the well-off.
And the national savings rate is at a negative number.
Yes, I've hear the argument that interest rates on bank savings accounts are so measly that some people feel it's useless to put money in one.
But that's not going to help you in an emergency.
You're not going to be able to build up the emergency fund overnight, but little by little, you can do it.
And, yes, these are really tough times -- prices for all consumer goods are high -- but Elizabeth Hilton, director of Cleveland Saves, doesn't buy the argument that no one can save anything.
"I do realize there are a lot of people, especially now, who are struggling and they really don't have something, but I also think we have waste in our lives," said Hilton.
The Cleveland Saves program, which started in 2001 as the first in the nation, has had more than 11,000 people in Northeast Ohio commit to save or reduce their debt by more than $7 million since its inception.
The program has 19 participating financial institutions-- many of the large banks with branches in Akron-- that have agreed to offer accounts that people can open with no fees or fees waived. Many of those institutions say they offer the same accounts in their branches in Akron, so ask at your local branch. You might be able to register your existing account as a Cleveland Saves account.
Hilton said saving just a little can be a good start.
"It's not about the amount. It's about the behavior of doing it with regularity that makes you're a saver. What I hear a lot is, 'I don't know have enough money to save.' I ask, 'Do you have a dollar? On the 10th of the month ore whenever you get paid, save a dollar.' Yeah, at the end of the 12 months, it'll only be $12, but the next go-around, it'll be more because its the behavior we're looking at," she said.
In the meantime, take the loose change you have in your pocket or wallet and start putting it in a jar.
Register, with America Saves, said it sounds simple-minded to save your change, but many people have started on the path to saving by collecting their loose change.
If you have 50 cents a day, that's $15 a month or $180 a year. I've seen statistics saying the average household has $90 in loose change around the house.
So start saving your loose change. The Beacon Journal newsroom is working with local banking institutions and others to try to come up with easy ways to turn that change into savings (since many banks have varying policies about accepting loose or rolled change) and I'll keep you posted.
It's never too late to save.
"Savings is a good thing. [People are not] failures because they're having trouble saving. Almost everyone does at some point in their life," Register said.
Saving something is the key, she said.
Another important key, Register said, is to follow dollar-stretching tips, and then actually save that difference and not spend it.
"Stretch-your-dollar tips don't save you money unless you save the difference," she said.
And then once you have that emergency fund built up, keep it for emergencies, said Nancy Hudson, a statewide specialist in money management for the Ohio State University Extension Services.
"People have to define what an emergency is. It can't be 'Let's see, I'm feeling blue. I need to buy some shoes," she said.
The whole idea of having an emergency fund is not adding to your debt to pay for that emergency.
Also, when you use your emergency fund, replenish it for the next emergency. Then go toward your next goal of three to six months' worth of living expenses in the long-term emergency fund.
Here's this week's challenge: If you don't have a short-term emergency fund, start one today. Commit to socking away some money for the sole purpose of emergencies. It'll give you some peace of mind.
Primary Press Contact
The Consumer Federation of America
Attn: America Saves Campaign
1620 Eye St NW, Suite 200
Washington, DC 20006
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