64% Americans Can’t Afford a $1,000 Emergency Expense

A recently released report stated that a significant amount of Americans would use other means, other than their own savings, in the event of an emergency expense that would cost them $1000 or more. The survey was conducted by the NFCC (National Foundation for Credit Counseling) where they polled 2,700 random Americans and asked them “If you needed $1,000 for an unplanned expense, where would you turn to find the money?”

Only 36% of the individuals polled stated that they had had enough savings for a rainy day, of the other 2,700 Americans polled they said that they would use other means to get them out of a $1,000 emergency expense.

  • 12% said that they would sell or pawn their belongings to get the $1,000.
  • 9% of Americans polled said they would have to take out a loan.
  • 17% of those polled said that they would have to borrow from friends or family.
  • 9% would have to take out a cash advance on a credit card.
  • 17% of those polled said that they would have to disregard other monthly obligations in order to take care of the emergency expense.

These disturbing numbers convey a lot about the current state of the American consumer and reveals that a majority of people are living paycheck to paycheck. The poll did not disclose age, class level or educational background but hopefully a majority of these people are young people or college students in their early-to-mid twenties, but regardless of their age or background it’s clear that a majority of Americans either have not set up a budget or do not have the means to save.

As of June 2011 the unemployment rate was teetering around 9.2%, so about 30 million people are unemployed in the US. That could explain some of the poll numbers, because if you are unemployed, you don’t have a viable source of income, and most likely have already depleted your savings. For that 64% of Americans that don’t have an emergency fund but are gainfully employed, regardless of what your income or monthly expenses, should set aside a fixed dollar amount to budget for an emergency fund immediately.

Getting a Budget Started

Setting up a budget can be a pretty simple process, and can be easily set up with a pen and pad of paper but if you have access to a Microsoft Excel spreadsheet or some sort of budgeting software it will make setting up a budget easier.

The first things first, gather up every financial statement that you can get your hands on; this includes bank statements, bills, credit card statements, or anything else that will help you set up analyze your monthly expenses. This is a crucial part of setting up a budget, so it’s important that you get everything together to give you an accurate snapshot of what you spend your money on.

The next step in the process is finding out what your take home pay is. If you are a W-2 employee this is a pretty simple process, and involves you looking at what you make after taxes. If you are self-employed, or own you own business this may be a little tricky, especially if your income fluctuates, but if you’re taking good care of your books you should still be able to find out what kind of monthly income you are working with.

The third step in setting up a budget is taking a look at what you’re spending money on every month and breaking your expenses into two parts: fixed and variable. Fixed expenses are things that stay relatively the same every month and do not fluctuate. These expenses include the mortgage or rent, car payments, and your health or car insurance. Variable expenses are the types of bills that are going to change from month to month, these include groceries, entertainment, clothing, eating out or gas. These expenses are going to play an important part of your budget planning, especially if you want to establish some sort of financial goals or emergency fund.

Once you have all your expenses and income down you are going to be able to find out if you’re “in the black” or “in the red.” If you’re in the red, (more money going out than coming in) the first things you are going to look at are the variable expenses. Look for opportunities to cut back on, variable expenses such as clothing, Starbucks or entertainment. If you’re in the black (have positive cash flow; more money coming in than going out) you can start allocating those funds towards your emergency fund, or savings.

Great Budgeting Tools

Most people who own a computer have access to tools such as Microsoft Excel, or you can always use Google Doc’s free spreadsheets to enter in your information and build a budget, but for those of us that want something a little more comprehensive there are a bunch of great tools to set up your budget.

My new fav iPhone app is a budgeting tool called Mint. Mint is an application that can be downloaded via the iTunes store or the Android App marketplace, and basically pools all your financial accounts together and will set a budget, categorize your spending and track your financial goals.

For example if you’ve set up a budget where you can only spend $80 a month on Starbucks or coffee, it will give you a status of where you are at in regards to your budget and spending, so if you’re already over-budget and it’s the middle of the month it will send you alerts that you are over budget for your “coffee” budget. Same goes with clothes or things like restaurants or going out.

Regardless of how what tools you are using to keep your budget the important thing is to have financial goals and stick with them. The first step is getting that emergency fund in place, so if you don’t have that financial safety net, set a budget to put money towards that immediately. The road to financial independence is paved with a hard work, discipline and determination so it’s not going to be easy but well worth the effort.

Bobby Dee is a personal finance blogger and works with a non-profit consumer credit counseling agency whose credit counselors have been helping consumers with their budgets and debt problems for over 20 years.

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