Survey finds Americans are not saving as much as they shouldDate posted: 11/20/15 07:15:00 AM
An emergency fund is critical to financial stability. In the event of an emergency, individuals will want money tucked away to support themselves and pay for unexpected expenses.
Not as many Americans are saving
Unfortunately, many individuals are not saving as much as they should. According to a survey conducted by GoBankingRates, 62 percent of participants indicated they had less than $1,000 in their savings account.
"It's worrisome that such a large percentage of Americans have so little set aside in a savings account," said Cameron Huddleston, a personal finance expert and columnist for GoBankingRates. "It suggests that they likely don't have cash reserves to cover an emergency and will have to rely on credit, friends, and family, or even their retirement accounts to cover unexpected expenses."
In fact, 21 percent of Americans noted they did not have a savings account at all.
How much is necessary
Each individual has unique needs, therefore the amount needed for an emergency is different for everyone. However, people often underestimate how much is necessary, which leaves many individuals with insufficient emergency funds.
"A lot of experts now recommend that everyone keep nine months to one year of income in an emergency account in case of job loss," said Gail Cunningham, spokeswoman for the National Foundation for Credit Counseling, according Bankrate. "People are often out of work now for as long as nine months, and if they don't have savings, they live on credit. So when they replace their job, they are behind because now they have debt to repay."
Individuals should track their spending habits to determine how much is needed each month. It is important to consider expenses like electricity and gas bills, rent or mortgage payments, taxes, food, child care, transportation and health care. Based on how much you spend each month, determine the size of your emergency fund, and work toward six to nine months worth of funds.
How to build a savings account
It's no secret an emergency fund is important but, it does take dedication, noted Bankrate.
"You really have to know yourself and discipline yourself if you're going to be an effective saver," said Greg McBride, CFA, Bankrate's senior financial analyst.
Making it automatic will help individuals ensure they regularly contribute funds to their savings account. Deposit a specific amount of each pay check to your savings account to better ensure regular deposits.
"Paying yourself first clears the biggest hurdle for saving, which is simply not being in the habit of saving," McBride added. "It takes care of saving money before you have a chance to spend it.
While automatically transferring money into a savings account during each pay period will build up funds, additional techniques will help as well.
Daily Finance suggested finding alternative ways to contribute to the emergency fund. Selling furniture on Craigslist, hosting a yard sale or taking on a part-time job for a bit are a few ways individuals can build a solid foundation for their savings account.
In addition, savers can turn hobbies into a little extra cash. For example, knitters or crochet artists can make hats, gloves, scarves and blankets to sell online.
Saving money for emergency situations is critical, and with a little perseverance and clear understanding of what is needed, individuals can ensure they build enough to cover most situations.
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