More Than Half of Americans Don’t Have an Emergency Fund


An emergency fund is like your get out of jail free card when you run into financial trouble. Unfortunately, even the best emergency loans fund has its limits, as many Americans have found out during the coronavirus pandemic. 

According to a survey conducted by the Pew Research Center, low-income individuals are feeling significant financial pressure. The study, which surveyed 4,917 U.S adults in April 2020, found more than half of all adults (53 percent) don’t have enough savings to cover their expenses for three months in the event of an emergency.

An emergency can come in many shapes and sizes. You can see your hours cut due to the pandemic or lose your job entirely if economic factors close your business. While these emergencies create shockwaves throughout your life, even smaller emergencies cause ripples in your finances. Your car breaking down or your water heater bursting can be challenging if it lands you with a costly repair bill.

Without emergency savings, you may start researching payday loans online. These short term loans provide convenient access to cash, even if you have bad credit, making them one possible way to handle an unexpected expense. However, they often come with high-interest rates, which can be just as hard to repay as the original emergency when coupled with their short repayment terms. 

How to Rebuild an Emergency Fund

As a short-term solution, an online payday loan only works if you can afford it. Either way, it can’t replace an emergency loans fund in your financial toolkit. So, if you’re one of the many who’ve seen their emergency savings dwindle, it’s crucial you focus on rebuilding them.

Rebuilding your emergency savings depends on a three-pronged approach to your finances. 

1. Start Using a Budget

Saving is hard when you don’t have a plan. That’s all a budget is — a spending plan that helps you prioritize your cash to where it’s needed most. 

Sitting down to create a budget (or update an old one) gives you insights into your current financial situation, helping you understand how much you earn and how much you spend in the average month 

2. Reduce Spending

Once you have a good handle on your cash’s comings and goings, you can zero in on unnecessary expenses. These tend to consist of your monthly wants. 

Wants include any purchase that you don’t need to make for the safety or comfort of your home, but they make your life a lot more interesting. Look to things like your streaming subscriptions, takeout habits, and cosmetic house improvements. Since you don’t need them to live, they’re easier to remove.

Your needs, on the other hand, will be harder to reduce because you do need them to survive. But there’s still a chance you can cut your bills down if you’re willing to put in the effort. Your utility bills are the easiest to start with because your bill reflects your energy usage. If you can reduce your energy consumption, you may lower your monthly bills. 

Once you find savings there, look to other essentials, like your phone loans plan and insurance policies. If you’ve been a customer with these providers for a long time, try to leverage your loyalty to gain better rates. If they aren’t willing to help you, shop around to see if you can find a better deal elsewhere. 

3. Boost Your Income

Your budget is a balancing act between outgoing money and incoming cash. If reducing your costs isn’t enough to lighten your outgoing expenses, consider what you can do to give your income more weight. 

If you lost your job due to COVID, it’s time to hit the job boards for a new position in an industry that wasn’t hit by the pandemic. 

If you lost some wages due to short-term closures, you may want to start a side hustle to supplement your income. Sit down and think about the skills you can pivot into a second job on freelancing websites like Fiverr or Upwork. They can be professional skills you use at your job, or you can leverage an in-demand hobby to earn some extra cash.

Rebuilding Takes Time

Most financial advisors recommend having enough cash in your emergency fund to cover three to six months of living expenses, but this goal may be daunting. As the New York Times shows, an average household of more than two people making a total of $50,000 to $69,999 would need over two years to hit this target. 

That’s a long time — long enough that you could see the task ahead pointless, as you’re bound to run into an emergency before your two years are up. But every emergency fund has to start somewhere, even it’s just $200. 

Rather than focusing on the end goal, pay attention to the practical actions you can do to increase how much you can save, no matter how little it may be. Follow a budget, reduce your spending, and boost your income — these three building blocks will help you reconstruct your emergency fund. 

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