If you answered, “no” to this question, you’re not alone.
A report recently released by the Associated Press stated that two thirds of all Americans would have a hard time coming with enough cash to cover a $1000 emergency.
Stop and think about this for a minute. Only one in three Americans have $1000 or more in cash available.
Americans on the edge of financial ruin
A report from the Corporation for Enterprise Development shows that things are even worse as nearly 50% of US households (132.1 million people) don’t have enough money in savings to weather a financial emergency or to even finance their long-term needs such as healthcare, college tuition and housing. And according to the Assets & Opportunity Scorecard these people would not be able to survive for three months if their income suddenly ended. More than 30% don’t have a savings account and 8% don’t have a bank at all.
Less than three months of savings
A lot of middle-class Americans are now considered to be “working poor.” In fact, more than 1/4th of all households earning $55,465 to $90,000 annually have less than three months of savings. And another 25% are categorized as net worth asset poor, meaning that they have very few assets such as a savings account, a home, or a car.
Relying on plastic
What’s happened is that when Americans can’t handle emergency costs they must rely on plastic. The average borrower is now carrying more than $10,700 just in credit card debt and 20% or one in five households continue to depend on high-risk financial services that target low-income and under-banked people.
Where do you stand?
Do you have enough cash available to cover a $1000 emergency? Do you have the equivalent of three months’ living expenses in a savings account? If not, and if you’re hit by an emergency expense you’ll have to do what many Americans are forced to do and that’s rely on your credit cards, which means piling on debt.
If your goal is to stay out of debt or to pay down the debt you have, there’s a simple answer. It’s called learning to live below your means – a fancy way of saying you need to learn to live on less money then you earn. To do this you will need to first determine where your money goes. This means you will need to track your spending for at least a month and then organize it into categories such as food, shelter, utilities, clothing, entertainment, dining out, debts, insurance and the like. Total this up and compare it to your net or take-home pay. Did you find you’re spending more than you earn? This would explain why you’re continually having to rely on your credit cards. You’re living beyond your means and need to go back, review your spending categories and look for areas where you could make cuts until your spending on necessities (food, utilities, shelter) totals no more than 40% of your net monthly pay.
The 40/30/30 rule
Most financial experts teach that the ideal budget is 40% for necessities, 30% for savings and 30% for discretionary expenses such as entertainment, eating out, clothing and so forth. If you find that, at this point, it would be flat impossible to hit that 30% for savings, try for at least 10%. For example, if your net monthly pay is $4500, try to stick away at least $450 a month into a savings account. Do this and you will have the equivalent of three months’ living expenses ($6075) saved up in just 13 months.
If given your current financial situation. there’s just no way in the world that you could save $550 a month, there’s an alternative. It’s called finding a way to earn more. For example, you might be able to take on a part-time job working at a Staples, a Best Buy or a Dick’s Sporting Goods. This type of job generally pays only about $10 an hour, but it you could do 20 hours a week you would take home something over $600 a month.
Does working retail not appeal to you? There’s Uber and Lyft where you could literally determine your work schedule. If you’re an artist or a craftsperson you could put your handiwork on Etsy where it would be seen by thousands of prospective buyers. You could open a store on Facebook or create a website and sell stuff. And today there are also a number of offbeat ways to earn extra money such as renting out a room in your house (think Airbnb) or having your car wrapped with ads.