Americans are once again focusing on financial matters for their new year’s resolutions with good reason: We’re still broke and need to save more money. A new survey finds the majority of Americans do not have enough money placed aside for financial emergencies. In fact, they hardly have any savings or a solid plan to handle unexpected expenses.
How empty are savings accounts across America? According to Bankrate, only 37% of Americans have enough money in their savings accounts to pay for life’s little surprises, such as a $500 car repair or a $1,000 emergency room visit. If a financial emergency arises, 23% supposedly plan to cover the bill by reducing spending elsewhere, 15% say they will borrow money from family and friends, and 15% expect credit cards to fill the hole — potentially leading to even bigger problems down the road.
“More than four in 10 Americans either experienced a major unexpected expense over the past 12 months or had an immediate family member who did,” according to Sheyna Steiner, Bankrate.com’s senior investing analyst, in a press release. “This proves that an emergency savings cushion is more than just a personal finance cliché, yet most Americans are ill-prepared for life’s inevitable curveballs.”
Americans expect to cut back on restaurant spending when a money diet is needed to solve a financial emergency. Fifty-eight of respondents say they are very or somewhat likely to reduce restaurant spending in order to save money. Forty-six percent say the same about their cable/satellite TV expenses, 41% and 39% will cut back on coffee and cell phone costs. Only 34% of people in the survey say they’ll decrease their spending on alcohol to save money.
Assuming more money will fix your savings shortfall is a commonly held belief, but people often find a way to spend that Christmas bonus or annual raise. Before you know it, you have a bigger car and house payment and the same meager savings account – known as lifestyle inflation. Bankrate finds 46% of the highest-income households ($75,000+ per year) also lack enough savings to pay for a $500 mechanic bill or $1,000 hospital visit.
Poor financial situations are also delaying major life events for millions of Americans. A separate survey from the American Institute of CPAs (AICPA) discovers more than half of Americans (51%) delayed a major life decision in the past year due to money reasons, up from 31% from a similar survey conducted in 2007. Americans are delaying events such as higher education (24%), buying a home (22%), medical procedures (19%), retirement (18%), having children (13%), and marriage (12%).
“When making major life decisions like buying a home or getting married, it’s crucial that you consider both the short and long-term financial implications,” said Ernie Almonte, CPA, chairman of the AICPA’s National CPA Financial Literacy Commission. “If you don’t have adequate savings in place or you’re having trouble paying your bills, it may make sense to hold off on major life decisions until you’re on more solid financial footing.”
To help Americans put themselves on more solid financial footing, the AICPA’s National CPA Financial Literacy Commission recommends the following steps:
1. Start or increase your savings rate: Increasing savings can provide households with the funds to enjoy extras without impacting their daily finances.
2. Start or continue following a monthly budget: Following a monthly budget ensures that households are living within their means and can reduce or eliminate the amount of incurred debt.
3. Put less money on credit cards: Decreasing incurred debt is an excellent way for Americans to feel more in control of their finances.
4. Start or add to an emergency fund: This will enable Americans’ daily finances to be less impacted by unexpected costs associated with medical procedures, natural disaster or other events.
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