Emergency Savings: “A Receding Tide Lowers All Boats”
Emergency Savings: “A Receding Tide Lowers All Boats”
Just one year ago, research from the Federal Reserve indicated that a record 68% of households had the cash to cover an emergency expense of $400. Fast forward to today, and a new study by Suze Orman suggests that statistic has reversed…2/3’s of households could not cover an unexpected $400 expense.
What gives? Inflation and rising prices! During COVID, many families benefited from savings only to later find themselves dipping into savings to pay for the rising costs of living, plus rising interest rates on many of their debts, especially credit cards.
What’s ahead? The Federal Reserve continues to be concerned about inflation, particularly wage inflation, and will likely continue to raise rates this year. The result is likely to exacerbate lower-to-middle-income families already struggling with their finances. They could experience additional stresses along with the expected recession.
What should you do?
It’s essential to have a plan in place. Here are a few tips on how to start an emergency savings plan during difficult times:
Take a financial ‘snapshot.’ Grab a piece of paper and list your debts, cash savings, and cash flow (what you spend each pay period on what items).
Start small and set realistic goals. Make budgeting a priority and stick to it.
Identify scheduled payments to discretionary expenses that you can live without, at least for several months. Examples might include cable TV or streaming subscriptions. Most of us are probably auto-paying for subscription services we aren’t using. Also, see where you can cut back on non-scheduled discretionary spending…a cup of office coffee versus a Starbucks latte?
Convert those monthly expenses to auto deposits into your emergency savings account. For example, convert your $100 per month cable TV subscription to an auto-deposit of $100 monthly to savings.
Utilize extra income. Any extra income can be put towards emergency savings. This can be money from a second job, tax return, or other sources.
The good news is that savings accounts are paying above 4% right now, but you may need to do a little shopping to find the best rates. Visit www.investopedia.com for high-rate options on savings accounts.
Although the average, $400 in savings is not enough. Everyone knows this, but will you be someone who will make the sacrifices to save an adequate emergency reserve? The goal should be a minimum of three months of your expenses.
Being prepared for unexpected financial needs by having an emergency savings account can provide financial security and peace of mind in times of crisis. With the right plan in place, you can easily save money during difficult times.
For weekly insights, follow The Welch Group every Tuesday morning on WBRC Fox 6 for the Money Tuesday segment.
