- It's important to have money in savings for unexpected bills.
- New data reveals that many consumers are sorely lacking in that regard.
That's pretty bad news for those in that boat.
You never know when life might throw an unwanted -- and unexpected -- bill your way. You might do a fantastic job of maintaining your home, only to have your air conditioning system stop working in the middle of summer or your water heater stop doing its job. Or, your car could be the source of an unplanned bill, whether it's a busted tire or a more expensive component that stops functioning when you don't expect it to.
And then there's job loss to think about. You never know when you might end up out of work due to no fault of your own. And in that situation, you might have to dip into your savings account to keep up with your expenses until you're able to start working again.
But what if you don't have much money in your savings account to access? If so, you're actually in good company.
A good 39% of Americans don't have the cash to cover an unplanned $1,000 expense, according to a recent Primerica report. But if that's the boat you're in, it's imperative that you take steps to boost your cash reserves as soon as possible.
Don't risk costly debt
If you don't have a solid level of emergency savings, you may have no choice but to rack up an expensive credit card balance to cover an unplanned bill or get yourself through a period of unemployment. But that's a good way to wreck your finances for a long time, and you don't deserve that.
So instead, work on boosting your emergency savings. The first step is to actually put yourself on a budget so you can better track your expenses and make sure you're not spending your entire paycheck month after month.
From there, you'll want to cut back on spending to free up more cash to put into the bank. That could mean dining out less frequently, canceling cable, or unloading another non-essential bill you can manage without.
Another option to consider is getting yourself a second job. The gig economy is strong these days, and if you pick up a side job, that's money you can allocate to savings alone, since it's not cash you'll be banking on to pay your bills. (Just remember to reserve a portion of that income for the IRS if taxes aren't taken out of your wages from the start, which will be the case if you work on a freelance basis.)
The most important financial move you can make
Building a solid emergency fund is so important that it should take priority over any other financial goal you might have, whether it's paying off existing debt or putting money into your IRA or 401(k) for retirement. In fact, ideally, you should have enough money in your savings account to cover three to six months of essential living expenses.
If you don't have enough money to cover a $1,000 expense, then chances are, you have a lot of work to do. But if you commit to boosting your cash reserves, you can slowly but surely build up a cushion that not only spares you from debt, but gives you more peace of mind.
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