GOLDEN VALLEY, Minn. - Most Americans don't have nearly enough money stashed away for emergencies and more than one-in-four don't even have a single penny saved.
Dan Ament, Financial Advisor with Morgan Stanley Smith Barney joined KARE 11 Sunrise to discuss a recent survey and provide some suggestions to help you prepare for a financial emergency.
- Emergency Fund 101 - Financial experts recommend that people maintain a cash reserve large enough to cover three to six months' worth of household expenses. The continued economic uncertainty and high unemployment rate should be enough to convince you that job losses happen. Plan ahead.
- Saving versus paying down debt - While Americans may be struggling to save money, the collective debt load is smaller than it was several years ago, particularly when it comes to revolving accounts such as credit cards. Between 2008 and 2010, consumers significantly paid down revolving credit accounts, according to figures from the Federal Reserve's April report on consumer credit.
Income matters - Not surprisingly, those earning more than $75,000 per year vastly increases the odds of hitting the minimum recommendation of six months; 45 percent of high-income earners say they've reached or surpassed that mark. Only 9 percent of these high earners say they have no rainy-day fund, compared to 52 percent of those earning less than $30,000.
- Breaking bad habits - Consumers are constantly barraged by marketing, none of which espouse living below your means and managing money responsibly. Scaling back spending doesn't happen overnight, particularly in a society where the economy is powered by ever-increasing consumer demand. It can take some time to change the mindset that leads to overspending, but there's an easy shortcut to boosting savings: automation.
- Alternatives to an emergency fund? - Every person's family's situation is different. If you feel you are in a secure place financially, you may not desire to have 3-6 months of expenses sitting in cash at such low prevailing interest rates. Other options may include investing these funds in your overall investment strategy knowing you can access them if needed. Alternatively, you may wish to keep a line of credit open and available to cover a short term need should it be required.
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