Are you prepared for a financial emergency? According to a recent study, many Americans are not ready to handle a financial storm. A Gallup poll found almost half of Americans (48%) are unable to afford a major purchase or repair. If a significant amount of cash was needed to purchase a car, major household appliance, or pay for a major home repair, many consumers would experience financial strain.
Having a high household income doesn’t always guarantee financial stability. Although those with higher incomes were found to be more likely to be prepared for a major purchase, there were still some members of this category who said they would be in distress despite their income. The report found that 16% of respondents with a household income of $240,000 or more were not prepared for a financial emergency.
Making ends meet
The Gallup poll showed that even though almost half of Americans are unprepared for life’s curve balls, they do have enough money to meet basic expenses. Roughly 70% of respondents said they have enough money to purchase items they need. However, this was not true for members of the lowest income groups. Those who reported an income of below $24,000 a year said they do not have enough money to meet daily expenses. On the bright side, three in five Americans say they are taking measures to reduce the amount of money they are spending each week.
“This finding suggests that people may tend to think they are spending too much even if they can afford it, that they want to save more of their discretionary income, or that cutting back on consumption is a normatively desirable behavior,” said Gallup researchers.
How to prepare your finances for a curve ball
1. Build an emergency savings fund
We’ve said it before, and we’ll say it again: start an emergency savings fund. This emergency cash could be a lifesaver during tough financial times. The purpose of having emergency money is to keep you from relying too heavily on credit to get you through a financial rough patch. Turning to plastic will only get you into more trouble by causing you to dig yourself deeper in debt.
2. Add income
Think of some ways you can increase your cash cushion. Do you have a talent that others would pay for? Put this talent to work by setting up a side business. Also consider part-time or seasonal work. Every dollar counts and could keep you out of trouble when financial disaster strikes.
3. Don’t lend money
It’s nice to help a friend or family member in need, but if your finances are not in tip-top shape, you should decline the request. If there is any chance you’ll need the money back sooner rather than later, keep your wallet closed. It’s unlikely you’ll get all of your money back (if at all), so send your loved one elsewhere for a loan. A Journal of Economic Psychology study found borrowers tend to treat loans from friends and family as a gift. Keep this spare cash for a rainy day instead of putting your own financial future at risk.
4. Cut back on spending
Regain control of your finances by reducing the amount you spend. You can accomplish this by tracking your spending for one month and then creating a budget. Another way to kick off your goal to spend less is by entering a financial fast.