Emergencies happen all the time, but many Americans aren't prepared for them, and specifically for how much they can cost.
Only 41% of U.S. adults have enough savings to cover a $1,000 emergency room visit, for example, or car repair, according to a recent survey from Bankrate of 1,015 adults. Of those surveyed, 16% said they would finance an emergency with a credit card.
These kinds of crises are actually common: Twenty-eight percent of adults or their close family members experienced one in the past year, and the average cost was a whopping $3,518.
Not having enough money in your emergency fund, or not having an emergency fund at all, could seriously set you back. You could fall behind on bills because paying off an unexpected expense takes precedence, or have to take on credit card debt. "The lack of progress on the percentage of Americans that could pay an unplanned expense of a thousand dollars out of savings is alarming," says Greg McBride, chief financial analyst for Bankrate.
"Successful saving is all about the habit. If you don't have the habit, you're setting up a big roadblock for yourself," says McBride. "People are probably hemmed in by high expenses and stagnant income that constrains their ability to save."
Here's why having an emergency fund is important, and how to save the money you need.
Ideally, you should have enough saved to cover six months' worth of basic living expenses including rent, groceries, and utilities, in the event that you need some extra cash, McBride says.
You may also want to consider the kinds of accidents that could happen in the near future and how you'd handle them. The average visit to an emergency room costs about $1,109 for out-of-pocket expenses, according to a 2019 report from TransUnion Healthcare, which included patients who are commercially insured, those who receive Medicare, and those who self-paid. Replacing the brakes on your car could set you back $500, according to Auto Service Costs.
Depending on your expenses, and the size of your family, the exact amount you need for your emergency fund will vary. Where a single 22-year-old may be able to stretch $1,000 in the event of an emergency, the same may not be true for a family of five.
The most important thing, says McBride, is to begin saving whatever you can. "There's the destination, and then there's the starting point," he says. "The destination is enough to cover six months worth of expenses, and that in itself is a moving target."
Get in the habit of putting away as much as you can from your paychecks as soon as you receive them. Don't wait until the end of the month to put away whatever is left over.
"Between emergencies and retirement, aim to be saving 15% of your income," says McBride. "How much is apportioned to one versus the other kind of depends on where your starting point is, but if you're starting from zero savings, you need to build that up, pronto."
Video by David Fang
McBride suggests automating the process by setting up a direct transfer of a portion of each paycheck into your savings the second it hits your bank account. That way, you become accustomed to living off of less money than you're making.
If you're struggling to find an extra $100 or even $50 a month to put toward an emergency fund, find creative ways to cut back. Consider trimming other areas in your budget like groceries or dining out, or cutting out streaming services or gym memberships. Small amounts can add up over time.
"Ever since the financial crisis, people recognize how important emergency savings is, and they know they're behind," says McBride. "Among millennials, for example, we see that it's one of their top financial goals, and I think that is an indicator of progress that people recognize how important it is, more so than in the past."
This story has been updated to reflect the share of U.S. adults who do not have enough savings to cover a $1,000 emergency.
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