Life has a way of surprising people in a less-than-ideal fashion. You might head over to your parking spot to drive to work, only to find that your car suddenly won't start. Or, you might wake up craving a nice, hot shower only to realize that overnight, your water heater seems to have given up on doing its job.
It's for reasons like this that it's so important to have an emergency fund. You just never know when life might throw you a curveball. And if you don't have savings, you may have no choice but to charge a surprise expense on a credit card and pay off the balance over time, all the while accruing interest and stressing about it along the way.
A recent SecureSave survey found that 63% of Americans could not cover a $500 emergency expense by tapping their savings. So if you fall into that category, it's important to take steps to build up cash reserves -- even if it takes a while to get to a place where you have a solid cushion.
You don't want debt hanging over your head
Credit card debt -- or any type of debt, for that matter -- can be expensive and stressful. And when you carry a balance on a credit card forward, you run the risk of accruing lots of interest that only makes your debt harder to pay off.
Case in point: Let's say you're forced to charge a $3,000 home repair on a credit card with a 20% APY. If it takes you three years to shed that balance, you'll end up spending a little more than $1,000 on interest alone. Ouch.
That's why it's so important to have some emergency savings on hand. A $3,000 savings account balance may not be doable for you in the near term. But it's important to save something so smaller expenses don't immediately drive you into debt.
The easiest way to build cash reserves
Saving money is not an easy thing to do. If it were easier to save, perhaps more Americans would be in a position to cover a $500 unplanned expense with relative ease. But a good way to go from minimal or zero savings to a more robust balance is to put the process on autopilot.
Suze Orman, who co-founded SecureSave, insists that "the best way to save is to automate it." Orman says that for people who don't have an emergency savings account through an employer (which is the case for many workers today), a good bet is to set up an automatic transfer from checking to savings every month.
And it doesn't have to be a massive sum, either. If you can only swing $10 a month now, do that. And if, come January, you get a raise and can then afford $30 a month, ramp up.
"You have to start somewhere," says Orman. So don't be discouraged if you're building up your cash reserves slowly. If you start automating your savings now, you might have $100 in the bank by the end of the year. That's something to be proud of if you're starting with $0.
All told, it's important to put yourself in a position where you can cover the occasional unplanned bill. Automating the process could lead to a much-improved financial picture for you -- and a lot less stress to boot.
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FAQs
Nearly Half of Americans Don't Have $500 in Savings
According to the survey, 49% of Americans have $500 or less in their savings account, with 36% reporting they have less than $100 saved up. This means that a small financial upset can cause these households to end up in debt — or more debt.
What percentage of Americans can't come up with $1000? ›
New study exposes finances of Americans: Most can't handle a $1,000 emergency expense. Planning for the unexpected is crucial since life doesn't always go as planned. But only 44% of Americans are prepared for a $1,000 emergency expense, according to a survey from financial analysis site Bankrate.
What percentage of Americans don't have a 2-3 month emergency fund? ›
As of May 2023, more than 1 in 5 Americans have no emergency savings. Nearly one in three (30 percent) people in 2023 had some emergency savings, but not enough to cover three months of expenses. This is up from 27 percent of people in 2022. Note: Not all percentages total 100 due to rounding.
Why should you have a $500 dollar emergency fund? ›
Saving up just $500 can help you get prepared for the most common emergencies. Selling unwanted items, cutting back on miscellaneous expenses or taking on an extra job could help you get to $500 more quickly than you'd think. Then, you can focus on building a bigger cushion.
How much money does the average person have in their bank account? ›
The median savings account balance for all families in the U.S. was $8,000 in 2022. Generally, higher-income earners and older individuals save more than younger ones. Some experts suggest three to six months' living expenses as a goal.
Do 90% of millionaires make over 100k a year? ›
Ninety-three percent of millionaires said they got their wealth because they worked hard, not because they had big salaries. Only 31% averaged $100,000 a year over the course of their career, and one-third never made six figures in any single working year of their career.
How can I get a $1000 emergency fund? ›
Every pay period, ask your employer to deduct $100 from your paycheck and transfer it to a savings account. Ask your HR representative for more details and to set this up. 2. Ask your bank or credit union to transfer $100 from your checking account to a savings account every month.
How rich do you have to be to be in the top 1% of Americans? ›
The most populous state in the country has the fifth-highest threshold to be a top 1% taxpayer ($805,519, which is also the last state to exceed $800,000). California residents earning beyond this threshold are taxed at an average rate of 26.78% (fifth-highest) and account for roughly 39% of total income tax in the ...
What percentage of Americans have $10,000 in savings? ›
Majority of Americans Have Less Than $1K in Their Savings Now
| How Much Do Americans Have in Their Savings Accounts? | | |
|---|
| $1,001-$2,000 | 10.60% | 9.81% |
| $2,001-$5,000 | 10.60% | 10.64% |
| $5,001-$10,000 | 9.20% | 9.51% |
| $10,000+ | 12.60% | 13.48% |
4 more rowsMar 27, 2023
While $20,000 may be more than what many Americans have in savings, it's not guaranteed to be an adequate emergency fund for you. Your emergency fund should be set up to cover at least three full months of essential bills. If your monthly expenses are high, you may need to save more than $20,000.
How Many Americans Are Living Paycheck to Paycheck? A 2023 survey conducted by Payroll.org highlighted that 78% of Americans live paycheck to paycheck, a 6% increase from the previous year. In other words, more than three-quarters of Americans struggle to save or invest after paying for their monthly expenses.
How many Americans have 100k in savings? ›
How many Americans have $100,000 in savings? About 26% of U.S. households had more than $100,000 in savings in retirement accounts as of 2022, according to USAFacts, a nonprofit organization that analyzes data from the Federal Reserve and other government agencies.
Is $100 K too much for an emergency fund? ›
It's important to have cash reserves available, but $100,000 may be overdoing it. It's important to have money available in your savings account to cover unforeseen expenses. Plus, you never know when you might lose your job or see your hours (and income) get cut, so having cash reserves at the ready is important.
Is 500 dollars a lot of money in the US? ›
“Is $500 a lot of money in the US?” The median household income in America is around $60,000 per year, and the poverty line for a single adult is $12,880 per year. So $500 would keep the median household going for about 3 days, or a “poor” person going for about 2 weeks.
Is a millionaire's best friend? ›
A Millionaire's Best Friend: Compound Growth
Here's a little secret: Compound growth, also called compound interest, is a millionaire's best friend. It's the money your money makes.
How much emergency money does the average person have? ›
$45,756 a year equals $3,813 a month in spending on average. Therefore, the average emergency fund size in America of $8,863 equals 2.3 months of expenses. Let's drill down deeper into the average savings figure of $8,863. The amounts vary widely by age, as you would expect.
How many people have $10,000 in savings? ›
Majority of Americans Have Less Than $1K in Their Savings Now
| How Much Do Americans Have in Their Savings Accounts? | | |
|---|
| $1,001-$2,000 | 10.60% | 9.81% |
| $2,001-$5,000 | 10.60% | 10.64% |
| $5,001-$10,000 | 9.20% | 9.51% |
| $10,000+ | 12.60% | 13.48% |
4 more rowsMar 27, 2023
The above chart shows that U.S. residents 35 and under have an average of $30,170 in retirement savings; those 35 to 44 have an average $131,950; those 45 to 54 have an average $254,720; those 55 to 64 have an average $408,420; those 65 to 74 have an average $426,070; and those over 70 have an average $357,920.
