As the economy continues to be stagnant and the unemployment rate continues to be high, a recent poll by BankRate.com found that still far too few people are preparing for the possibility of a job loss or a long term financial emergency.
Over 6 million people have been out of work longer than six months, yet only 24 percent of Americans have at least six months' expenses in an emergency fund. An equal 24 percent have nothing tucked away for a rainy day. And 22 percent have some savings, but not enough to cover even three months' expenses. Those under age 30 and the lowest-income households were most likely to report having no emergency savings at all.
As the poll found, only 24 percent of Americans have saved a minimum of 6 months of expenses in an emergency fund or saving account of some kind. To be honest I guess I'm not surprised that in our credit focused society that only 1/4 of people have saved up 6 months of expenses, but to some degree it's still sad that so many people are unprepared. Are they hoping that someone else – or the government – will pick them back up when they've fallen? I wouldn't count on it.
Why Are Emergency Funds Important?
There are a variety of reasons why I think emergency funds are more important than ever.
Bad Things DO Happen
I think a lot of people have the outlook that bad things happen to other people, or that if something bad does happen, it won't be that big of a deal. The thing is, most of us are going to have a major negative event at some point.
Money magazine says that 78% of us will have a major negative event happen in any given 10-year period of time.
78% of us are going to have a major negative event to deal with in any 10 year period. I know that has certainly held true for our family has we've had to deal with several major negative health events. So if you haven't had one recently, you may be due.
Emergency Savings Help You Bounce Back Quicker
The fact that you have an emergency fund can help you to weather any number of storms from a layoff to a major health event. While you can't always avoid bad situations, when you have an emergency fund you're able to bounce back that much quicker. When you don't have an emergency fund the sad fact is that people end up in foreclosure, bankruptcy and other horrible situations I wouldn't wish on my worst enemy.
Why not plan ahead and avoid all those things?
Emergency Savings Give Peace Of Mind
When you have emergency savings you'll have a lot more peace of mind when the waves start to get higher and the adversity starts showing up. When you've got emergency savings, insurance and a backup plan, you won't be as worried about some of the bad things that can happen.
Have A Backup Plan
So many have not planned ahead for the negative events that will happen in life. They don't have emergency savings, they don't have insurance and they are just hoping that someone else will cover the bill for them. While in some cases that may happen, far too many will find that there isn't anyone there that they can rely on, including the government.
Do you have an emergency fund saved up? How much are you saving in case of an major negative event? Why do you think so few people save up in case of an emergency?
Ashley @ Money Talks says
I’m going to look at this the other way and say that 46% of people have 3-6 months of expenses saved. I think that’s pretty good! yes, I wish it was 100% but that’s never going to happen. Of course younger people will have the least savings, for one they still think they are invincible, and two they are just getting started. It takes time to save money.
I do not have emergency savings, but I am in an unusual position. I spend a lot less than I earn. I have no debt except for a small mortgage and max out my retirement savings. I can handle little emergencies and the bigger ones I have a line of credit. I am fairly conservative so I have not used my line for these things.
I do have some access to cash in an emergency but would like more with the way things are going. I plan on working on this over the next several months.
This may sound funny, but I actually really like how you state that “Bad Things DO Happen”.
Yes, they do. To many people, and unexpectedly in many cases. That might make it really difficult in a lot of cases, but it helps to have the attitude that bad things WILL at some point happen unexpectedly. This isn’t a glass half-empty approach, but a statistical approach based on reality. I have a friend who, in the last year, had both his parents pass away, a car accident, and a new boss that doesn’t like him even though his prior one rated him highly. Stuff happens to the best of us, right?
Plan for such occurences by having 9 to 12 months saved in an emergency fund.
Mr. Money says
Amen.. I think far too many people have an attitude of always being blindsided by bad things when they happen, instead of having some foresight and just planning for them ahead of time. How many times have you heard someone complain about not getting ahead because their car broke down, or because they got sick and had to have surgery. If they had planned ahead (if possible), they wouldn’t be having those problems – or would be able to bounce back much quicker.
Amanda L Grossman says
I would feel so vulnerable without a savings account! Even in college on a minimum wage job (except during the summers, when I brought in around $12.00/hr), I graduated with over $2,000 in the bank.
Stacking Paper says
Yikes! Is it really 1 in 4? I’m with Squirrelers in that bad things DO happen, and its a matter of planning for WHEN they will happen rather than IF they will happen. You could either; find yourself in trouble without any savings, or find yourself in trouble with an appropriate amount of savings. Its your own choice, unless you have some exceptional gift where you avoid stormy seas your entire life, in which case you have plenty of savings that you can then contribute to an early retirement.
glenn oropeza says
The reason so many people don’t have emergency funds is that they relied on their credit cards too much rather budget wisely. Another reason is denial. We often get so caught up with everyday life that we never stop to think about the ‘what if’s’, We think things such as “the warranty will fix the car” and “my health insurance will cover me in case of. . “.