A study of family finances by several government agencies reveals that only 38 percent of adults nationwide have established an “emergency fund” to fall back on during tough times. Are the remaining 62% of Americans one paycheck short of financial collapse?
According to a survey by the Ohio Credit Union League, more Ohioans are saving compared to the rest of the country, but not saving enough. Fifty seven percent of Ohioans said they have a savings account designated for emergencies; but, 33% percent indicated their savings will not cover one month of essential expenses.
While many Ohioans have learned the importance of saving, about half find it difficult to save for emergency purposes only. Slightly less than 51% percent of Ohioans indicated they have used their savings to purchase a non-emergency item within the last 12 months.
Consumers who do save varied categorically.
When asked if they were disciplined or occasional savers, respondents said:
- Very disciplined 17.1%
- Somewhat disciplined 38.2%
- Occasionally save 35.3%
- Never save 9.4%
Many credit union financial experts suggest setting aside at least six months of essential expenses and making saving a priority. However, according to Tim Boellner, CEO of AurGroup Financial Credit Union, monthly bills that eat away at income frustrate those trying to save.
“Most people don’t have significant expenses they can cut to free up large sums for saving, so they give up before they really even try,” said Boellner.
If people have trouble staying motivated, Boellner recommends directly depositing a portion of each paycheck into a separate account. “It’s the old adage that if you don’t actually see the money, you are less likely to use it,” Boellner said.
How to Establish a Rainy Day Fund
Identify essential monthly expenses.
Before you can save, you need to know how much to save. Look at your monthly expenses, and categorize them as essential (rent/mortgage, car, food, utilities, credit card minimums, etc.) and non-essential (entertainment, eating out, clothes, cell phone, etc.). Then add up the essentials to determine your monthly income needs.
Multiply essential expenses amount by six.
Why six? Most financial experts think a true emergency fund should consist of at least six months of essential expenses. While this number may be daunting, it is the best way to avoid difficult financial circumstances such as bankruptcy, loan default, and eviction, when you have a loss in income.
Create a savings plan.
Let’s say you have $1,000 a month in essential expenses, which means you need at least $6,000 to account for six months. Start by identifying how you can realistically amass this amount, and within what time frame – whether six months, one year, or three years. The goal is to generate a savings habit within your income and budgetary means.
The slow accumulation of funds in your savings account can be frustrating. If you find yourself losing interest, try incorporating a visual around the house. For instance, keep a jar close by and fill it with loose change and money you save by eating in or forgoing a daily coffee.
Ask for help.
The more you ask, the better informed you are. Sit down with a financial counselor at your local credit union and ask for help identifying ways you can save. It is likely they have products, services, and advice that can help you achieve your goal faster.