Over the last 18 months, as the effects of the pandemic took their toll, many Americans struggled to make ends meet. Faced with unemployment or income losses, many people resorted to dipping into their savings. In fact, by August of 2020, some 14% of Americans – or 46 million people – wiped out their emergency savings.
Equally concerning is that one in three Americans had decreased or halted their retirement fund contributions at that time.
Fast-forward a year, and finances and savings are still very much top of mind for most people. In June this year, more than 60% of the population said they were either extremely concerned or somewhat concerned about the state of their finances.
Additionally, some 37% of people say that having enough emergency savings is their top concern.
That’s a worrying statistic considering that financial experts recommend that people should save enough to cover three to six months of expenses for unexpected emergencies.
The economic fallout of the pandemic is just one part of the problem. Having the ability and discipline to put money away into an emergency fund has always been difficult for many people, especially low-income households and earners, many of whom live from paycheck to paycheck.
Too often, once they’ve paid for their basic living expenses such as groceries, rent, and transport, there’s little if anything left over. However, in many cases, saving is still a ‘to do’ item on a mental list that unfortunately never materializes. Getting started is hard. We are all busy and stressed, and doing all the things we are supposed to do can seem exhausting.
So, what’s the way forward?
While it’s understandable that lower-income households have a harder time saving, it’s not a goal that’s necessarily beyond their reach.
The best place to start is to look for ways to break the paycheck to paycheck cycle. Importantly, this means avoiding the temptation to take out credit card debt or payday loans. These avenues simply send you into a spiral of debt that’s difficult to recover from.
Here are some ideas to help you start building that emergency fund, little by little:
Saving consistently until you have three to six months of emergency savings built up can seem like a daunting prospect. But don’t let that deter you. Start small and build from there. Perhaps set yourself a modest initial weekly savings goal – say $10. If you can keep that up for a year, you’ll have $500!
If your savings go into your regular checking account, it’ll be all too easy to spend them on day-to-day expenses. Ideally, your savings should be deposited into a separate bank account. Many financial institutions offer savings accounts with very low or no fees and favorable interest rates. So, do your homework and shop around.
It’s important to be disciplined about making your savings deposits. The best way to do this is to set up an automatic deposit feature on your savings account. This way, you won’t have to remember to make your regular savings payments; there’ll be no temptation to skip or delay them.
While you’re moving ahead with your emergency fund savings plan, you should concurrently look for ways to cut down on your day-to-day spending and supplement your income. Is your employer open to letting you pick up extra shifts? Could you walk or cycle to work instead of taking the bus or train? Are any items gathering dust in your garage that you could sell off in a yard sale or on Craigslist?
Having a household budget and sticking to it is just as important as building up an emergency fund. A budget allows you to keep track of your income and expenditure and ensure the two are aligned. Revisit your budget regularly and ask yourself if there are any opportunities to spend less and save more, for example, by dining out once a month instead of twice.
While it might be exciting to see your emergency fund grow, it’s important to remember why it’s there. Don’t be tempted to blow it on a vacation, clothes, or gadgets. Think of how hard you’ve worked to save what you have and how daunting starting again from scratch would feel.
Increasingly, employers are including financial wellness programs in the benefits packages they offer their employees, helping them reduce money-related stress, budget better, and reduce debt.
Payactiv is the leading provider of Earned Wage Access services which help people manage day-to-day finances and bills without taking out loans.
As part of our service, we can also help you build financial resilience by saving towards short- and long-term goals.
Simply put, Payactiv makes it easy to access, plan, spend, and save to live today with dignity while building financial security and savings for tomorrow.
Learn more about how Payactiv can help you.
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