We all worry about money -- spending too much, not having enough. But for most of us, it's not just a fleeting concern. According to a 2016 study by Northwestern Mutual, 85% of U.S. adults suffer from financial anxiety, with 28% actively worrying about their finances at least once a day. But if there's one thing that keeps Americans up at night more so than anything else, it's the idea of an unexpected expense or emergency.
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Though we're told time and time again how important it is to establish an emergency fund, according to the Federal Reserve Board, almost half of Americans don't have the money on hand to cover a $400 emergency. Rather, they'd need to borrow the cash or sell off belongings to come up with that money quickly. This data is consistent with a study by GoBankingRates conducted last year, which revealed that 62% of Americans have less than $1,000 in savings. Worse yet, of those who haven't hit the $1,000 threshold, more than one-fifth don't have so much as a dollar in the bank. But while having little or no savings is definitely not a great situation to be in, you do have the power to take charge of your finances. And the sooner you act, the better since you never know when an emergency might strike.
Stick to a budget
One of the greatest barriers to saving money is not knowing where all of your income goes. That's why maintaining a budget is a crucial component of saving. Yet according to a 2013 Gallup poll, only one-third of American households actually follow a budget. If your savings account is sorely lacking, it's time to not only create a budget but review it monthly to keep your spending on track. Just as importantly, your budget should include some room for savings. If it doesn't, you'll need to start either earning more money or cutting costs to free up that cash month to month.
Build your emergency savings
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While saving money should be something you strive to do all the time, as a starting point, aim to accumulate enough cash to cover three to six months' worth of living expenses. If you own a home or have several dependents, however, you're better off aiming higher. Remember, your emergency fund needs enough money to cover not just your living expenses but other unanticipated costs you might encounter should you find yourself unable to work for a period of time. For example, if you're currently paying $300 a month toward your health insurance premium but your employer is picking up the rest, you'll be responsible for paying the remainder if you're no longer working and want to keep your plan. When calculating your emergency fund, don't just think of your current bills; consider the additional monthly expenses you'll face as well.
Make big changes, not small ones
If your emergency account is almost fully funded, you can probably get away with making small changes, like cutting your cable package or skipping takeout twice a week, to free up extra money to save. But if you're way behind on savings or, worse yet, a not-so-proud member of the $0 balance club, those minor changes probably aren't going to cut it. Instead, you'll need to seriously rethink the way you spend money and take steps to lower some of your highest monthly expenses. This could mean downsizing your living space or moving to a less desirable neighborhood to lower your housing costs. It could also mean trading in your car for one with a lower monthly payment, or giving up your vehicle altogether and sticking to public transportation. You might even consider going so far as relocating to a part of the country with a more affordable cost of living overall. This is an especially wise move to contemplate if you're able to retain your current salary while lowering your living expenses across the board.
No matter what steps you take to start building your savings, the key is to begin immediately. You never know when an emergency might arise, and the sooner you establish that financial safety net, the less vulnerable you'll be if the unexpected happens to strike. It's far better than the alternative of worrying yourself sick over money matters like so many Americans regrettably do.
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