What would happen to you if you needed to come up with $1,000 for an emergency? If you’re like most Americans, you’d be in trouble. This is a question that CNN.Money looks at in an August 10th article titled “Most Americans can’t afford a $1,000 emergency expense.” According to a July 2011 poll recently released by the National Foundation for Credit Counseling, 64 percent of Americans said they would have to have to turn to a source other than their savings account to take care of the emergency. While 36 percent of the respondents said they would turn to their saving account, 17% said they would borrow from friends or family, 17% said they would disregard another monthly expense to pay for the emergency, 12% would sell or pawn assets, 9% would take out a loan, and the remaining 9% would get a cash advance on their credit card. What would you do? Let’s face it, none of these options really sounds that good other than pulling the $1,000 from your emergency fund or saving account.
What does all this say about Americans? It simply says we don’t have a large enough emergency fund, something we looked at in Ch. 5. The problem is that saving isn’t natural, and spending, with its immediate gratification, comes easily for most of us. So how do we come up with an emergency fund? Putting together a personal financial budget, something examined in Ch. 2, is the key, and making sure that you save automatically – in effect, putting savings on autopilot. For example, you could open an account with a mutual fund and have money automatically deposited into one of its money market accounts, which work just like a bank savings account. Of course, that’s easier said than done, but there are some easy to use tools out there to help out. One of them is Mint.com, which is a free online money management service.
- Do you have an emergency fund? Do you think your parents do?
- If you needed to come up with $500 by the end of the week, how would you do that?
- Have you ever had an emergency that required more money than you had on hand?
- If your car or computer died today, where would the money to replace it come from?