How close are you to disaster?
I read an article this week that bothers me. The article, “Most Americans are one paycheck away from the street”, claims that 63% of Americans have no emergency savings. If you’re among this 63%, you are much closer to disaster than you realize (more on that in a minute). The article claims that “63% of Americans have no emergency savings for things such as a $1,000 emergency room visit or a $500 car repair”. Another study by GOBankingRates supports the conclusion, finding 62% of Americans have less than $1,000 in their savings account.
Below is the data from the GoBankingRates study, showing savings by age group (focus on the blue and green on the left side of the chart, which have $0 in savings):
Now, focus on the right side of the chart (light blue, green and yellow). Those in this category have $1,000 or more in a savings account, and it’s a shockingly low number (based on the % on the bottom axis, you can see it’s less than 30% of the population).
If you had your preference, would you rather be on the left or right side of the chart above?
Are you willing to take the steps required to move to the right?
What are your odds?
According to this article, 4 in 5 Americans will face “horrible financial problems” in their lifetime. 80%. Think on that for a minute. If you’re in a room with 10 people, 8 of you will face the fire. Unfortunately, only 4 of you in that room have fire insurance (in the form of emergency savings).
4 Will Burn.
If you’re on fire, you’ll have no choice but to do what it takes to extinguish the blaze. Most use credit cards, a dangerous escape that may extinguish the immediate blaze, but only adds to the embers. Credit cards are poison, and the downfall of many (also, not having credit card debt is one of the 7 Signs You’re On The Road To A Great Retirement). Don’t get addicted. Long term, they may burn you worse than the immediate fire you’re facing today. There is a better way.
Bottom Line: It’s highly probable that you will “face the fire” at some point, so you better have some “fire insurance”. Don’t ignore the risk. If you’re on the left hand side of the chart, take action now, before you face the fire. Only you can take responsibility for your personal financial situation.
I Can’t Afford Fire Insurance – What Should I Do?
I’ve been thinking about what I should suggest to my readers since I read the original article that’s triggered today’s post. You’re struggling financially, you have credit card debt. What should you do?
I’m not in your shoes. I’ve built a 6 month emergency fund over 30 years in the labor force, and I realize I’m blessed (I would argue, yes blessed, but also responsible).
But, if I were in your shoes, here’s what I’d do:
- Take $20 from your wallet. Now. (really, don’t read the next line until it’s in your hand)
- Put that $20 bill in an envelope.
- Hide the envelope somewhere in your house.
- Start using cash for all purchases. Put your credit cards in a bowl of water, then freeze it in your freezer.
- Mark your calendar, or put a note on your mirror, to take $20 from your wallet every Saturday morning.
- Next Saturday, take another $20 bill from your wallet, put it in your “Emergency Savings” envelope.
- Don’t take money out of the envelope until it’s got $1,000 inside.
Follow those simple steps, and within one year you’ll have $1,000 stuffed in an envelope (50 weeks x $20 = $1,000). If you sincerely can’t manage the $20/week, start with a $10 bill. Force yourself to use cash, avoid credit, and stop spending when you run out of cash (it’s easier than a budget).
The point is: start with something, and consistently add a small amount each week. Don’t take anything out until you’ve got $1,000 in your envelope.
Don’t live without it.