According to a study released by the Consumer Federation of America, the typical person has around $2,000 of unexpected expenses in an average year.
Here’s more: “The ability of Americans to cover unexpected expenses, such as a car repair or emergency dental visit, greatly depends on their having an emergency savings fund,” said Stephen Brobeck, CFA’s Executive Director. “Those with a fund are highly likely to be able to afford these expenditures. And they will be less dependent on high-cost credit, such as payday loans or even credit cards, to bail themselves out,” he added.
What are unexpected expenses?
- The car breaks down.
- The plumbing stops up.
- You decide to surprise your partner with a weekend get-a-way.
- A visit to the emergency room requires a hefty deductible.
- Your hard drive crashes and the Geek On Call renders it useless.
- A mole starts to wreck havoc on your lawn and an exterminator is needed.
- The roof springs a leak.
- You come up short at tax time.
You get the idea. The writer at No Credit Needed polled his readers on how much they had in their short term savings and many of the comments included money set aside in an emergency fund to cover these types of expenses. But here’s another interesting stat: 20% of his respondents had less than $1000 set aside. Do the math… and those people likely will have to put some unexpected expense on a credit card.
All the experts suggest that we allow for the unexpected. Gayle Rose Martinez at the University of Wisconsin writes:
No matter how much we plan, life has its own agenda. An unexpected expense can create havoc with any spending plan. The best way to deal with the unpredictability of life is to have layers of protection. In our spending plans this can happen by developing categories of savings that will build up over time.
These categories would be for expenses we know could happen in the future, but there is no time frame attached to them. These categories could be labeled car repair, house repairs, yard expenses, medical expenses, emergency expenses. Then you will be ready when the unexpected pops up. Over time, $20 or $50 a month will add up and create a layer of protection for you when life brings an unexpected expense.
So how do you get started? The Digerati Life has 5 Different Ways To Build An Emergency Fund. He lists the different faces of emergency funds, rates these different sources of cash and writes:
The emergency fund is there to ensure that you have a liquid cash source when you need it most and if you can make sure it exists for you at all times, then you’re in fine shape, regardless of how you define an emergency.
The writer at ZenHabits provides a list with 21 Strategies for Creating an Emergency Fund. He offers some practical steps to get people started and writes:
If you have trouble saving, it’s not enough to tell you how important it is to have an emergency fund. You need some strategies for doing it.
And finally, my favorite guy, Trent at The Simple Dollar with his dollar-a-day approach. He writes:
Can you spare $1 a day? Then you can get started with an emergency fund. With just $1 a day, you can have an emergency fund of almost $400 by the end of the year and thus reach the $1,000 mark in about two and a half years.
So what are some of your unexpected expenses and how have you covered them? How much is in your emergency fund and how did it get there? Love to hear your thoughts below.
Nina blogs about money over at Queercents.