by Maurie Backman | March 12, 2020
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No money in an emergency? Talk about a scary notion.
When it comes to managing finances, most of us aren't perfect -- we've all had our share of blunders that hurt us temporarily, like missing a student loan payment or being late with a credit card bill. But if there's one money mistake you really want to avoid, it's not having money for emergencies.
The reason? It could take a really long time to recover from that error. According to a recent report by New York Life, people who didn't maintain an adequate emergency fund took an average of nine years to recover from that mistake. Ouch.
If you're without emergency savings or your cash reserves need a boost, you'd be wise to make that your chief priority. You won't regret it.
What happens if you don't have an adequate emergency fund? There are a host of potential consequences. On a fundamental level, without money in the bank, you may have to resort to borrowing to pay bills. And you could wind up carrying that debt for years.
But borrowing money isn't always an option, especially if your credit isn't good. If you lose your job, don't have emergency savings, and can’t get a loan, you'll risk having your vehicle repossessed when you fall behind on car payments, and you'll risk having your home foreclosed on if you miss too many mortgage payments.
For true protection from financial unknowns, you should aim to have from three to six months of essential living expenses tucked away in a savings account. That money could come in extremely handy if you lose your job and need to cover your bills in the absence of a steady paycheck. It can also be a cash source when you encounter unplanned issues with your vehicle, home, or health.
If you don't have at least three months of expenses available in cash, start cutting back on spending immediately to boost your savings. Comb through your budget and see which spending categories you can slash most easily, whether it's takeout meals, $50 a week spent on clothing, or cable TV you can get by without.
It also pays to consider getting yourself a second job to boost your savings, especially if you're starting with nothing. Working a few extra hours a week could help you build that cushion sooner, and it could also spare you from having to cut back on buying little things that make you happy.
Remember, we never think we need emergency savings until an unplanned scenario jars us into reality.
Don’t risk that average of nine years of rebuilding your finances -- that’s a really costly mistake. Instead, make an effort to sock away money for life’s many unknowns. Build or boost your emergency fund as soon as you can.
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