One-Third of Americans Weren't Prepared for Financial Emergencies Before the Pandemic
by Maurie Backman | Published on Sept. 21, 2021
The pandemic has highlighted the importance of having cash reserves on hand. New data reveals that many people weren't ready for it.
There's a reason we're supposed to load our savings accounts with cash for a rainy day. You never know when a catastrophic financial event might occur. And without money in the bank, you could wind up in a dire situation that sends you into debt or even bankruptcy.
Now, when we think about financial catastrophes, it's easy to point to the coronavirus outbreak as a recent example. The pandemic has been a major health crisis that many are still grappling with. But it also upended a lot of people's finances. And unfortunately, a large number of Americans weren't prepared to deal with an event that instantly caused a massive wave of unemployment.
In January of 2020, about 27% of U.S. families couldn't come up with $2,000 for an unplanned expense within a month, according to the Stanford Center on Longevity and the Global Financial Literacy Excellence Center. And 33% of Americans were struggling to make ends meet before the pandemic began. It's likely that many of these people suffered financially over the past 18 months.
If you don't have enough money in savings for emergencies, you could be in a scary position the next time a major financial crisis hits. If that's the case, it pays to work on boosting your cash reserves.
How to build your emergency fund
As a general rule, it's a good idea to have enough money in an emergency fund to cover three to six months of essential bills. The logic is that if you were to lose your job, you'd have your personal cash reserves to fall back on. That pile of cash could also help you cope with other unplanned expenses, like home repairs or sky-high medical bills.
If you don't have a decent chunk of cash in savings, your first move should be to get yourself on a budget. That way, you'll see where your money goes each month, and you'll be in a better position to identify expenses to cut back on.
Next, start spending less -- immediately. That could mean taking drastic steps like moving if doing so makes sense financially. (You don't want to spend so much on a move that it wipes out your savings.) Or it could mean taking a series of smaller steps, like not dining out and canceling your cable plan.
It's also worth considering getting a side hustle if there's only so much money you can squeeze out of your paycheck from your main job. You could do a side gig a handful of hours a week, or you might push yourself to work a lot in the near term -- it depends on how quickly you want to complete your emergency fund (and how many extra hours you can realistically handle adding to your schedule).
We don't know when the next major financial crisis will strike. But the truth is, there doesn't have to be a catastrophic event like the coronavirus pandemic to fuel a need for savings. The company you work for could lose its key clients and shutter, leaving you without a job. Or you could sustain an injury that leaves you unable to work and with a pile of medical bills. The best way to protect yourself from any financial disaster is to have a healthy emergency fund, so be sure to make that your priority if you're not happy with the current state of your savings.
Alert: highest cash back card we've seen now has 0% intro APR until 2024
If you're using the wrong credit or debit card, it could be costing you serious money. Our expert loves this top pick, which features a 0% intro APR until 2024, an insane cash back rate of up to 5%, and all somehow for no annual fee.
In fact, this card is so good that our expert even uses it personally. Click here to read our full review for free and apply in just 2 minutes.
About the Author
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.