April 3, 2017
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On December 22, 2017, The Tax Cuts and Jobs Act was signed into law. The information in this article predates the tax reform legislation and may not apply to tax returns starting in the 2018 tax year. You may wish to speak to your tax advisor about the latest tax law. This publication is provided for your convenience and does not constitute legal advice. This publication is protected by copyright.
Alarmingly, only 37% of Americans have enough savings to pay for a $500 emergency. This is according to a survey from
Bankrate.com
conducted by Princeton Survey Research Associates International. Their Money Pulse survey focused on budgeting and unexpected expenses for American households and reported that the other 63% would have to resort to cutting back spending in other areas, charging to a credit card, or borrowing money from friends and family to pay for an unforeseen event.
Spending can be cut back in such areas as going out to eat, buying a newer cell phone, buying expensive gifts, subscribing to cable or satellite TV, or updating technology programs or tools. But what about dipping into their savings? Those with higher incomes were most likely to rely on savings for emergencies, and half of those earning $75,000 or more per year said they could cough up the dough for an expense that came without warning. In contrast, only 23% of people with yearly incomes less than $30,000 said they would withdraw money from their savings accounts, but it would be a challenge to deposit additional money afterward to make up for the withdrawal. And 9% of respondents at this income level said they didn't know how they would pay for an unexpected expense.
According to a survey by the personal financial website GOBankingRates , 69% of Americans have less than $1,000 in their savings accounts, and 21% don’t even have an open savings account. What's more, 34% have no savings at all. The average American sets aside about 5% of disposable income as savings, according to the U.S. Bureau of Economic Analysis. This amount is not considered sufficient by financial experts to pay for most people’s retirement, according to the Bureau.
That being said, when asked in the survey how they had dealt with their most recent unexpected expense, 36% of respondents said they in fact used their savings because they had no other choice. Another 20% said they dealt with it by setting up a payment program, and 13% used a credit card. About 1 in 10 said they borrowed from family and friends, while another 11% said they haven’t even begun paying a recent emergency bill.
We all have to think about unexpected expenses that will hit us at the worst possible times. So instead of being reactive we need to be proactive and avoid the stress that a financial emergency creates. If we try to boost our savings, it will give us peace of mind and help us sleep at night. We can’t avoid unforeseen expenses, right? But if we have a plan in place, that is a step in the right direction. In the Bankrate Survey, only one in five Americans reported having at least six months’ worth of expenses saved—the amount of savings considered by some financial advisors and other professionals to be a sufficient cushion.
Think about the stress of having a health emergency or accident… what would this mean to you, and how would it affect you? Before you experience a challenge like this, be sure to examine your various insurance policies, such as health and medical, long-term care, and auto insurance. Talk to your insurance agent or financial advisor to ensure you are covered for any emergencies you are not prepared to pay for.
Make saving money a habit, and enlist the help of a fee-only financial advisor to help you make a plan. Doing this will help you avoid being among the 67% of people who can’t afford a $500 emergency.
Spending can be cut back in such areas as going out to eat, buying a newer cell phone, buying expensive gifts, subscribing to cable or satellite TV, or updating technology programs or tools. But what about dipping into their savings? Those with higher incomes were most likely to rely on savings for emergencies, and half of those earning $75,000 or more per year said they could cough up the dough for an expense that came without warning. In contrast, only 23% of people with yearly incomes less than $30,000 said they would withdraw money from their savings accounts, but it would be a challenge to deposit additional money afterward to make up for the withdrawal. And 9% of respondents at this income level said they didn't know how they would pay for an unexpected expense.
According to a survey by the personal financial website GOBankingRates , 69% of Americans have less than $1,000 in their savings accounts, and 21% don’t even have an open savings account. What's more, 34% have no savings at all. The average American sets aside about 5% of disposable income as savings, according to the U.S. Bureau of Economic Analysis. This amount is not considered sufficient by financial experts to pay for most people’s retirement, according to the Bureau.
That being said, when asked in the survey how they had dealt with their most recent unexpected expense, 36% of respondents said they in fact used their savings because they had no other choice. Another 20% said they dealt with it by setting up a payment program, and 13% used a credit card. About 1 in 10 said they borrowed from family and friends, while another 11% said they haven’t even begun paying a recent emergency bill.
We all have to think about unexpected expenses that will hit us at the worst possible times. So instead of being reactive we need to be proactive and avoid the stress that a financial emergency creates. If we try to boost our savings, it will give us peace of mind and help us sleep at night. We can’t avoid unforeseen expenses, right? But if we have a plan in place, that is a step in the right direction. In the Bankrate Survey, only one in five Americans reported having at least six months’ worth of expenses saved—the amount of savings considered by some financial advisors and other professionals to be a sufficient cushion.
Think about the stress of having a health emergency or accident… what would this mean to you, and how would it affect you? Before you experience a challenge like this, be sure to examine your various insurance policies, such as health and medical, long-term care, and auto insurance. Talk to your insurance agent or financial advisor to ensure you are covered for any emergencies you are not prepared to pay for.
Make saving money a habit, and enlist the help of a fee-only financial advisor to help you make a plan. Doing this will help you avoid being among the 67% of people who can’t afford a $500 emergency.
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