Survey: Americans Can’t Cover Emergency Expenses

A well-stocked emergency fund is a great tool for avoiding debt from an unexpected expense, like a sudden car repair or an unplanned medical bill. How much you should have in your emergency fund is a matter of income and expenses. Conventional wisdom says you should aim to set aside three to six months' worth of expenses that you can access in a hurry. That could help you avoid the need for debt relief down the line.

But just as a journey of a thousand miles starts with a single step, even $100 set aside is a great start to an emergency fund. 

We asked people about their savings and debt in a recent Freedom Debt Relief survey, and it turns out that about half still have some work to do when it comes to building their emergency funds. Here's a look at what respondents said and some tips on how to put a little more into your own emergency fund.

How Much Are Americans Saving for Emergency Expenses?

The good news is that just over half of respondents (53%) said they have some money set aside to cover emergency expenses. About 58% said they have more than $1,000 but less than $5,000 saved.

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Why You Shouldn't Use Credit Cards as Your Emergency Fund

Without enough savings to cover unexpected costs, you may wind up relying on credit cards to handle these expenses. Using credit cards for an emergency expense can be fine in the short term, especially if balances are paid in full each month. But long term, relying on credit cards without any savings could put you in financial danger. 

Credit cards typically have very high interest rates, which means any debt you carry from month to month will rack up interest very quickly. That interest could make paying off your credit card debt harder, especially if you're already having  financial problems.

A solid emergency fund could make a big difference in helping you weather financial challenges. Even if you use your credit card for the sake of convenience at the time, you'll know you have the cash to pay it in full without taking on expensive debt.

Planning Your Emergency Fund

Anything you set aside for your emergency fund is better than having nothing set aside at all. Even $5 or $10 a week that you put into emergency savings means you'll have $260 or $520 at the end of a year to help cover unexpected expenses.

Watching your savings mount up can be motivating. When you notice your balance start to grow and you know that every few dollars you put in is going to count, you might well be inspired to boost how much you put in each week or month. 

A common recommendation is to have at least three to six months of expenses set aside in case of job loss or another major financial emergency. 

That said, anything you save could come in handy when an unexpected expense crops up.

Here’s what you could have if you save $10, $20, or $25 each week. Note that you’ll wind up with a bit more if you keep your money in a high-yield savings account. In the first year, the interest may not be that impressive, but it grows faster later on. We assume an initial deposit of $5 and 3% interest on the savings.

These savings amounts should look very attainable. Most of us eat at restaurants now and then or grab an occasional coffee. Putting $25 a week into savings is a great goal. As long as you do it and leave the money alone, you could have thousands built up in the account before you know it.

Here's how these savings goals could relate to your monthly pay:

Yes, some of those numbers are bound to raise eyebrows. Many people simply can’t imagine having five figures in their emergency fund. It’s important to visualize yourself with this level of financial security. Think of how much money you spend in any given month and realize that you’re already living at these levels. You're definitely the kind of person who can have a five-figure bank account, and you deserve it. 

Your emergency fund should be available any time you need it, so it’s best to keep it in a high-yield savings or money market account where you can access your money quickly in an emergency.

How to Save More for Emergency Expenses

Many Americans need to increase their savings. If you’re one of them, there’s no time like the present to get started. A common saying in personal finance is, the best time to start saving is yesterday. The second-best time to start is today. Don’t worry about what you did or didn’t do in the past. You can change the course of your financial path—and it really does bear repeating: anything extra you can save is better than nothing.

Here are a few tips to boost your emergency fund:

• Create a budget. If you don't already have one, making a budget is a huge first step to taking control of your finances. You don't need a line item for everything, but knowing where your money is going is vital to managing it well.

• Trim some expenses. When you know what you’re spending money on, you may be surprised by what you can potentially cull. Any subscriptions you don't need, memberships you don't use, or other forgotten expenses should be the first to go. Remember—it doesn’t have to be forever. Cuts can be temporary.

• Set goals. Having a clear goal in mind can help you stay motivated. Set your big goal, then break it into smaller, mangeable milestones so you can see progress.

• Get a savings app. A good savings app can help automate a lot of the boring stuff and make reaching your financial goals that much easier.

• Coupon and sale shop. Coupons may feel old-school, but they're alive and well—and digital. You can still find physical coupons to cut if you like the zen of scissoring the Sunday paper, or you can use store and third-party coupon apps to save money in a few clicks.

• Get rid of your high-interest debt. You might be surprised how much you can set aside once you get rid of expensive interest fees. Focus on paying off your high-interest debt, like credit cards, to really free up some cash.

• Increase your income. If you've already cut what you can, your best option is to increase your income so you have more money to save. Start a side hustle, ask for a raise, or even consider changing companies to find a new role with better pay.

Give Your Finances a Boost

Learning how to deal with debt, money, and saving for your future is important, but it doesn’t need to be hard. If you’re scouting solutions for your debt, Freedom Debt Relief has helped more than one million Americans and settled over $18B in debt. Talk to one of our Certified Debt Consultants today to find out if Freedom Debt Relief could be the right solution for your debt.