Here's What Happens When You Don't Have at Least $500 in Emergency Savings

You'll often hear that it's important to have money in a savings account at all times. The reason? You never know when an unplanned expense might arise, whether it's a home repair, car-related issue, or medical episode. So it's important to have an emergency fund to turn to in those situations.

You also need savings on hand in case you end up losing your job. Generally, workers who are let go through no fault of their own are entitled to receive unemployment benefits. But those might only replace a fraction of the paycheck you once relied on. So it's important to have savings to fall back on in that scenario.

Unfortunately, data from the Federal Reserve reveals that only 68% of Americans could cover a $500 sudden expense using just savings. This tells us that 32% of U.S. adults may not have $500 in the bank. But if you're part of the latter statistic, you should know that you're taking a pretty big financial risk.

When you don't have much or any savings to tap

When you own a home or vehicle, a single repair could easily reach or exceed the $500 mark. And if you end up needing medical care, your health insurance deductible might easily amount to $500.

That's why it's so important to have at least $500 in the bank. In fact, ideally, you should aim to have enough emergency savings to cover three full months of living expenses, which could make it possible to get through a period of unemployment. But as a starting point, it's really important to try to get your savings up to the $500 mark at least.

What might happen if you don't have $500 in savings and have to charge an expense that large on a credit card? Well, it depends on your credit card's interest rate and how long it takes you to pay that debt off. But take a look at this table for a few different scenarios.

So in this example, the worst-case scenario has you accruing $135 of interest on a $500 balance -- almost one-third of the cost of the initial expense you had to charge. You can run the numbers for yourself using a credit card interest calculator.

How to build savings quickly

If you don't have at least $500 in savings, it's important to try to get to that point fairly quickly for some financial protection. To that end, first, take inventory around the house and see if there are items you can unload for cash. If there's a handbag in your closet in great condition you don't use, see if you can get $50 for it, even if it originally cost $150. Don't worry as much about recouping your initial purchase price, as that may not happen.

Next, try to cut your spending for a period of time. This doesn't mean sentencing yourself to years of not being able to treat yourself. It could, however, mean implementing a three-month period where you truly follow a strict budget and bank the difference.

Finally, consider turning to the gig economy for an income boost. You can use your extra earnings to build savings, but keep in mind that if you're paid on a freelance basis, you will need to set aside a portion of your income for tax purposes.

Not having at least $500 in emergency savings could cost you. So do your best to try to get to that point. However, don't stop there.

Remember, ideally, you do want to aim for enough savings to pay for three months of essential expenses. So once you find a system for saving money that works for you, uphold it until you're in a much better position to cope with financial surprises.