Financially, Americans are living on the edge.
The National Bureau of Economic Research has just released a study showing that nearly 50% of Americans would have trouble coming up with $2,000 within 30 days to take care of an emergency.
According to their survey, 28% of Americans indicated they would “certainly” not be able to come up with the funds while 22% claimed they “probably” would not be able to raise the money.
We’ve all experienced Murphy’s Law – anything that can go wrong will go wrong at the worst possible moment. You know, the car that suddenly won’t start, the washing machine that grinds to a halt, or the septic system that backs up in the dead of winter.
But it seems Americans are less likely than ever to cope with these sudden financial surprises. We’re left borrowing money from friends and relatives, or worse yet, we resort to credit cards with sky high 26% interest rates or fall prey to payday loans, all of which put us even further behind the eight ball.
No doubt 30 years of stagnant wages and skyrocketing prices in gas, health care, and nearly everything else has made it difficult for many of us to keep our heads above water.
How then can you create an emergency fund when you’re struggling just to make ends meet?
Sell Your Junk:
Most of us are drowning in junk. Our closets are stuffed. Our basements and garages are overflowing. Amazon, eBay, garage sales, and consignment shops are great ways to raise cash before you need it. I’ve personally raised several thousand dollars just from selling books and used textbooks on Amazon and eBay.
Consider Sacrificing the Sacred Cows:
We all have those sacred cows. You know the expenses we don’t touch because we feel we’ve “earned” them or that they’re a “normal” part of modern life.
Take one of our biggest money drains, the automobile. In graduate school I felt owning a car was a “right,” even though my meager graduate school stipend couldn’t support owning one. Only by addressing my sense of entitlement and jettisoning the car was I able to get my money situation straight.
Many Americans hold sacred the idea that owning two family cars is an absolute necessity. For some of us it may be. But for others the extra $5000 to $10,000 savings from owning just one car may be all they need to build an emergency fund and turbocharge the rest of their finances.
But it’s not just automobiles that serve as the sacred cows we often feel “entitled” to possess. Cable television, large $85 monthly bills for smart phones, and eating out constantly may be areas ripe for the sacrificial altar.
Take it Slow and Easy:
It’s much easier to save $15 a week over a long period of time than to come up with $1000 for an emergency. You barely miss the $15 while trying to come up with $1000 could create a sense of panic.
A simple and easy way to build up an emergency fund is have $15 to $20 automatically deducted from your paycheck into a special savings account. Over time you’ll build your emergency stash while hardly missing the $15 or $20.
Eliminate the Waste:
All around us are services we don’t use or fees we don’t need to pay. Perform a spring cleaning of your finances. Do you have memberships you don’t use? Could you get lower fees by moving from a bank to a credit union? Find the money leaks in your life and use the savings to create an emergency fund.
Create a “Tip” Jar:
We often get into trouble financially when we don’t pay attention to our spending. Conscious spending requires thinking about each and every purchase. Use it to your advantage. Before leaving home every morning think about how you can save $3 that day. Skip the morning latte, forgo the daily newspaper, avoid the vending machines. At the end of the day put your “savings” into a “tip” jar. By the end of the year, you and your spouse will have saved close to $2000.
Times are tough, but that doesn’t mean we can’t get prepared for the inevitable financial emergencies that’ll come our way.
Could you come up with $2000 within 30 days? How have you dealt with financial emergencies in the past? If you have an emergency fund, how did you go about building it?