Something’s wrong in your household. It needs to be taken care of right away, but fixing the problem will cost about $2,000. Can you afford it? Whether it’s a trip to the doctor’s office for your children, a vehicle repair, or even the loss of your job, emergencies can happen at any moment.
Unfortunately, the average American aged 40 or below says that there’s only a 50% chance that they’d be able to scrape together $2,000 unexpectedly, no matter how necessary it is. The unemployment rate is currently lower than it’s been since 2007. Even so, though, most of us simply don’t have the funds we need to hold our lives together in the face of sudden expenses.
The Effect Financial Emergency Has on the Economy
Despite appearances, the economy is still not entirely stable, and may even be headed for another financial crisis down the road. It’s because of this instability that many households are simply unable to afford an emergency expense.
When a major cost does arise unexpectedly, some of those who don’t have the money are able to call upon a family member for help. If that’s not an option, then they may end up putting themselves in debt to cover it, which keeps them from being able to save and ultimately prevents them from having the funds next time an emergency rolls around as well. It becomes an endless cycle and self-fulfilling prophecy.
In the meantime, significant life events such as marriage, education, and medical procedures, are put on hold, as any extra money ends up going towards these unexpected expenses. Of course, this also means no money to put away for retirement, either.
Money Moves to Focus on in 2017
How can you break this cycle? Paving the way toward financial stability begins with planning. First, make a monthly budget and stick to it. Cut back on luxuries and frivolities and focus on paying off your debts as quickly as possible. The sooner they’re taken care of, the less you’ll owe in the long run, as interest will have less time to accrue.
Once those are paid off, take the monthly amount you were putting towards it and place it in savings instead. Have an emergency fund, but also start thinking about your retirement as well, investing that money for the future.
Consider opening a retirement account and holding the funds in your Roth IRA for at least five years. Doing so will enable you to withdraw money tax-free in case of an emergency. Since contributions are allowed even while a person is still gainfully employed, an IRA is the perfect safety net for concerned Americans.
One of the only things we can count on in this life is uncertainty. You never know when a financial emergency may arise. It’s wise to have some precautionary savings set aside, in order to reduce the blow. Don’t wait for one to arise to start saving. Build up your fund now, so that you can take care of things quickly and painlessly, without accruing debt or jeopardizing your future.