According to a Bankrate survey, only 46% of U.S. adults have enough emergency savings to cover three months of expenses.
ST. LOUIS — It’s what some call their “rainy-day” fund. As the saying goes, “when it rains it pours,” so that’s why it’s vital to have some money tucked away for when life happens.
The idea of an emergency savings is to have a safety net when the unexpected happens. That includes things like natural disasters, medical expenses, car repairs or even a job loss, but multiple studies show that most Americans cannot afford an emergency.
According to a survey conducted by the Federal Reserve Board, two out of five people can’t cover an expense that costs $400.
How many people actually have emergency savings?
5 On Your Side sat down with Rob Read to get the answers. Read’s been a financial advisor since 2001 and is the Founder Investment Advisor of CWR Private Client Group.
“It’s tough, but we just spend, we love spending money, and unfortunately we don’t like saving money,” he said.
It’s something most of us aren’t great at, but it’s critical for when life throws us a curveball. While some are expecting the unexpected, that’s not the case for everyone. According to a Bankrate survey, only 46% of U.S. adults have enough emergency savings to cover three months of expenses.
Read wishes more people understood the importance of having emergency funds.
“There is a lack of financial literacy out there and it should start in high school, but they don’t, it’s all about the other things in high school. I try to do a lot of education based on how we get our high schoolers prepared for college, for working, whatever direction they decide to go,” he said.
How much money should you have tucked away for when things don’t go as planned?
According to Read, it depends.
“If you’re a single-person household and you’re a single earner, probably six months because you have nobody else to rely on for that money. If you’re a dual household and you’re not spending all of your paychecks, maybe three months,” he said.
By expenses, Read doesn’t mean your paychecks, but how much money you actually need to survive, like paying for your home and food.
“When I say food, it’s just regular food, like grocery store food, because if you’re out of a job, you’re probably not going out to eat that much,” he said.
What can you do today to start building an emergency savings?
According to a recent survey by Forbes, about 60% of Americans are living paycheck to paycheck, so how do you even begin to save for an emergency fund. Read recommends doing a spending analysis every 90 days.
“Every quarter, go back and see where all your money is, just see how much money you spent on all your things and how much money came in. Then, you’ll be like, ‘OK, is there a positive,’ or if I’m in the red or in the black, right,” he said.
While no one wants to prepare for the worst, Read said it’s better to be safe than sorry.
“It’s all mindset and, subconsciously, trying to train your brain on making those decisions without hindering your enjoyment of life,” he said.
Read said once you make that 90-day spending analysis, it’s important to highlight the different things you’re spending money on, so you can see your spending trends. That’ll help you make decisions on where you need to cut back.