Study: Half of Americans do not have $400 to survive a financial emergency

OYS: Surviving a financial emergency

BIRMINGHAM, AL (WBRC) -Managing money is a constant struggle for most families, but it’s worse for the average American than many might think.

A study from the Federal Reserve finds 46 percent of Americans do not have enough to cover an unexpected $400 bill. If a car or home repair needs to be addressed immediately, nearly half of Americans would be forced to choose which of their essential expenses will go unpaid.

“We want you to have that emergency fund of at least $1,000 because when bad things happen, and they always do, you’re not dipping into your savings, relying on a credit card or even worse, saying ‘I guess I won’t eat this month,’” Dr. Stephanie Yates, an associate professor of finance at UAB’s Collat School of Business, tells WBRC.

Dr. Yates recognizes that saving is difficult on a fixed budget but says there are numerous ways to build an emergency fund that will lessen the pain of unexpected bills. She suggests building that $1,000 fund within a year using the “52 Week Challenge.” During the first week of the challenge, set aside $1. The second week, save $2, and so forth. By week 52, you will have over $1,000 in your slush fund. You are not required to save those amounts in order. You just need to make sure there is a week for each dollar amount or save roughly $20 a week for a year.

Being cautious of not overspending on big fixed expenses such as housing and transportation will also have a major impact on your ability to save.

“If your take home pay is $1,000 a month, you should not be spending more than $300 a month on rent. You’ll live either really tiny or have a couple of roommates.” said Dr. Yates. “What happens is people say ‘I don’t want to live like that. I’d rather live larger and just eat peanut butter and crackers.’ That is not sustainable.”

Getting locked into a lease or car loan that is more than you can afford will be expensive to undo and could create a snowball effect of impacting your other bills with late fees, overdraft fees or having accounts closed, should an unexpected bill come up.

If you are faced with a financial emergency and do not have the money available to cover it, the best advice is to stay calm.

“I think the natural instinct is to panic,” said Dr. Yates. “What’s not as obvious is all of the resources that are available. There are ways to handle it. There are people, agencies and organizations that can help if you are willing to look for them.”

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