Bankrate conducted a survey and discovered that over 60% of people in the US do not have enough funds to handle even $500 worth in a financial setback. Nearly 50% of those that were part of the study, and make a minimum of $75,000 each year said they had inadequate funds if they were ever to experience a financial emergency. About 20% of those who completed the study stated they believe they would have to cut back on what they are spending if they want money for an emergency fund. 15% of people said that if they were in that situation, they would simply use their credit card to pay for the expenses.
Lauren Berg, a spokeswoman for Simple Finance, says that those who turn to credit may find that it can also become a setback, even if it’s just minor. She added that just a minor setback can still be all it takes to form a serious long-term financial crisis. Berg continued to say that her company strongly discourages people to transfer unexpected expenses to credit cards.
Continuing this type of financial behavior will only make it worse, as people accrue credit card interest. Another 15% of those said if a negative financial situation were to occur, they believe they would be ok because they would find a friend or a family member to borrow it. Sheyna Steiner, reporter and senior investing analyst at Bankrate, said that of you choose to borrow the money to get past a tough bind, it also means you may not have the credit during the times you do need it. She says that if a situation were to arise when you need a line of credit, it is possible it will not be there in the event there are any changes to your report.
Steiner mentioned that one thing that occurred during the great recession was people discovering that their credit lines had significantly lowered. Therefore, if you depend on it to be extended to you when you need it, the answer may not be what you want. Experts say that going the payday loan route during your times of trouble is just as bad as a credit card. Their interest rates are ridiculously high, as much as 400%, and can easily lead someone to a downward spiral.
The same survey conducted by Bankrate found they about 57% of people successfully made it through the year without using any source of financial help. Nearly 40% of people said that they, or someone they knew, experienced a major financial setback in the last year. Steiner says that unexpected expenses can arise often enough that people should prepare for it. Of course, saving money even when you know you need it is not as simple as it sounds for many. There are people, namely young adults, that are still working on paying their student loans back or are finding a job where they can make an adequate income.
Without a proper job that pays enough, it difficult to save anything when someone is living paycheck to paycheck. These adults typically make just enough to pay their bills, and any financial setback would be extremely detrimental to them. Berg, who says she understands and recognizes this, says that saving money can typically feel like a thankless ordeal when someone is faced with that of extreme debt. She recommends that even the smallest effort can make a big difference. The main thing you want to have is to focus on gaining more confidence in money management. She states that it is the foundation of her company philosophy, which is that all consumers should feel completely confident with their cash. Berg adds that that if you can put away even $5.50 away each paycheck, that can amount to $2,000 in emergency savings you can use after a year.
Steiner even says that she advises people to ease a little on their debt payments so they can prioritize saving for an emergency first. She believes it the key is putting saving first and reducing money where you know you can reduce it, even if it is temporary. Steiner says that if you truly want to be fully equipped and prepared for the inevitable, you have to start treating it as if it will happen. Most people are bound to need car repairs sometime down the road or will need to call the plumber. She believes if it’s debt that is the main reason you’re having financial setbacks, then remember to deal with it as best as you can. That alone will save you $500-$1000 in a year that you can use when you need it. Most importantly, it will be money that is now owed. She believes that after you get all that set up, then you can go back to tackling any debt you have.