47% Don’t Have Emergency Fund

Published on August 22nd, 2016

47% Don’t Have $400 For an Emergency

By David Lukas, LCU President & CEO

I recently read an article in which the author makes a difficult admission.  He wrote that he, like 47% of the respondents to a Federal Reserve Survey, wouldn’t be able to pay for a $400 emergency without borrowing or selling something. 

He’s a successful author of multiple books, he’s been a TV writer, and is self-described as middle to upper-middle class. Yet, he’s botched his finances to an extent that he wouldn’t be able to pay for a $400 emergency. 

What is the cause of so many families getting themselves into this situation?  There are many factors with the ease of getting credit a prime one.  With an easy supply of credit via credit cards/department store charge cards, you can shop to your heart’s content and only have to pay back a little at a time.

Many times, it’s a result of emotional decisions.  It “feels” good to buy new clothes.  Or, you need to keep up with your friends/family and get that new big screen TV, new phone, new car or new house to make you “feel” successful.  If their friend has something, they want it too! 

Finances can also get emotional when loved ones are involved, such as when you and your spouse are arguing about them.  They can be emotional when your child is throwing a tantrum when you deny their request for a new toy, phone, etc.  When you break down and buy your child what they want–because you want the best for them or you don’t want them to be upset– the decision is based on emotion and not dollars.

Finances aren’t emotional, or they shouldn’t be.   Sure, you work hard for your money and you deserve things.  While that may be true, it doesn’t mean that it makes sense financially.

I believe there is a huge lack of financial education for a majority of the population.  Financial decisions should be, “Can I afford this?  How does this affect our budget?  Is this purchase a need or a want?”  Wants are fine, as long as they don’t hurt your financial situation.  If you can’t afford the want(s), stick with the need(s).

Going back to the author of the article that I referred to, he stated that he lived beyond his means and made poor decisions.  When times were good, he lived as if times were always going to be good.  As a writer, income isn’t always steady and he didn’t plan for that.  He also chose to send his daughters to private school because he wanted to give them the best chance to succeed.  This isn’t necessarily a poor decision by itself.  However, by not making adjustments in the family budget, he ended up using credit cards to finance their lifestyle.  Also, he thought that since he was keeping up with the minimum monthly payments and sometimes a little more, that he was doing alright.

Actually, all he was doing was digging deeper into debt.  Once you’re to the point of only making minimum payments on credit cards, you’re already in trouble and you have to start making some difficult decisions and start changing your spending habits to get out of that debt.  (Please see previous articles on how to get out of credit card debt.)

If you find yourself in this situation, you’re not alone.  You can get out of debt!  There are incredible resources available online as well as articles, videos, apps, books, etc., to help people get a handle on their finances and out of debt.  Don’t procrastinate.  Make a pledge that you’re going to get out of debt.

 

 


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