When you don't have money set aside for a rainy day, it doesn't take much to send your financial situation south rapidly. Losing your job, getting sick, or facing any major unexpected expense could force you to turn to credit cards, payday loans, car title loans, or other forms of high-interest borrowing.
Using those tools can saddle you with expensive, compounding debts that are tough to pay off. In addition, having such debts can make it harder to access less-onerous forms of credit -- mortgages, low-interest-rates car loans, and such.
However, the risks inherent in being unprepared for a costly emergency situation haven't been enough of an incentive to convince a large fraction of the populace to prioritize saving: Fully 21% of working Americans haven't saved any money at all, according to a new study from Bankrate.com.
On the positive side, 48% of those surveyed said they are saving something -- up to 10% of their income, in fact. But even at the high end of that range, they're falling well short of 15% of their incomes many financial experts suggest we all should be saving.
Younger generations are struggling more
Millennials (ages 23 to 38) and Generation Xers (ages 39 to 53) are having a harder time saving than their elders, according to the study. They're more likely to have saved nothing, or to be putting away less than 10% of their income. Those 55 and older were the most likely to be saving more than 10%, which makes sense, since by that point, people may have paid off their homes and student loans, and completed the expensive life events that make it more difficult for younger folks to set money aside.
If you're not saving -- or just not saving enough -- one of the best ways to change that is to make the decision to do it once, and then arrange matters to take your ongoing willpower out of the equation.
"The most effective method to save more money is to do so automatically," explained Bankrate Chief Financial Analyst Greg McBride in a press release. "Set up payroll deductions that go directly from your paycheck into a dedicated online savings account for emergency savings and a workplace retirement plan or an IRA for retirement savings."
Quite simply, he advises, "Save it before you get the chance to spend it."
High expenses were named by 38% of working Americans as the top reason they weren't saving. This was the most-cited excuse across all age groups and income levels. If it's yours too, you have two choices: You can cut your expenses, or you can make more money.
To figure out which one makes more sense for you, it's important to understand your financial situation. Examine your past few months of expenditures, and compare them to your income. Map out your actual budget. Are there obvious areas where you can cut? If there aren't -- and especially if you're running at a deficit -- then you need to either make some tough choices (like moving someplace cheaper) or taking on added work, or hunting for a higher-paying job.
You need a safety net
Would you skydive without a backup parachute? Do you drive without fastening your seat belt? Failing to save leaves you financially vulnerable should the unexpected happen -- and while the particulars may be impossible to predict, we all know that "unexpected" problems are inevitable in our lives.
You may not be able to immediately jump to saving 15% from each paycheck, but if you're at 0%, just start somewhere. Setting aside even a small amount is better than saving nothing, and once you've begun, you can set increasingly higher goals for yourself over time. Eventually, those steady, gradually boosts to your savings rate will get your financial cushion to where it needs to be, and remove a big threat to your long-term ability to live your life the way you hope to.