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While the study doesn’t define a “properly” funded emergency fund, readers of Mustard Seed Money know that financial experts typically recommend saving 3-6 months’ worth of expenses in this type of account.
The reasoning for 3-6 months? If you are out of work during a recession, you are most likely to be out work for 6 months. If you are out work during a non-recession period, you are likely to only be out of work for 3 months. That’s where the 3-6 months worth of expenses comes from.
In addition to 21% of respondents having more credit card debt than emergency funds, 12% reported that they neither have credit card debt nor any emergency funds.
How can this be good news?
Americans seem to be taking the emergency savings versus their credit card debt seriously. 58% of respondents reported that their emergency fund or savings account amount was greater than the amount of credit card debt that they held.
This figure is the best that it has been in 8 years, with 2015 also reaching the same percentage. That is why the current stats are good news. In 2016 and 2017, only 52% of respondents had more in savings than credit card debt.
It is encouraging that more and more people are taking their finances seriously. More people should be prepared if an emergency occurred.
However, before we pat ourselves on the backs, there is still a lot of improvement that can be made. 33% of respondents, at any moment, are one missed paycheck or unexpected expense away from a financial crisis.
I’m sure it won’t surprise anyone when I say that the 67% of the Silent Generation (76-93 years old) has more in their emergency funds than in credit card debt. However, what is surprising is that Millennials (<38 years old) actually come in second with 61% of them having more savings than credit card debt.
Rounding out the generations, Baby Boomers (54-72 years old) report that 56% have more emergency funds than credit card debt. Finally, Generation Xers (37-57 years old) come in last with 54%.
How To Save More In Your Emergency Fund
Clearly, the first thing that you can do is spend less on your credit cards, which will in turn allow you to save more. On top of that, you can set up an automatic savings plan. This allocates a certain dollar amount from each paycheck towards your emergency fund, until it is fully funded.
As most of you know, this is a not a new concept. David Bach expands upon it in his book, The Automatic Millionaire. I recently read, “Learning to save is a lot like running a marathon – you need to build up to it by training gradually. It’s too overwhelming to go from saving nothing to saving $2,700 a month, so you need to start slowly and keep it simple.”
If you feel like you don’t have any money left at the end of the month to save, you might be doing things wrong.
It is crucial to “pay yourself” first by setting aside an amount from each paycheck. Saving $2,700 in a year may be daunting for many, let alone $2,700 in a month. That’s okay. As Bach affirms, starting slowly is quite alright.
As most of you know, lifestyle inflation is real. The more you make, the more you may want to spend. However, think back to your first job and probably your lowest salary. You were still able to survive on that and hopefully make happy memories along the way. That’s why it’s so important to self-audit your finances to ensure a savings plan within your budget. It may take some tinkering, but you can make the necessary changes to ensure that you are saving in case of an emergency.