Saving For An Emergency

Barbara Marquand | guest writer for GoTalkMoney

Saving For A Rainy Year

If you're like most Americans, you're saving more than you did before. According to the most recent figures from the Bureau of Economic Analysis, Americans' personal savings rate for July was 4.2 percent--almost 2.5 times higher than the average of 1.7% for all of last year. But, again, if you're like most people, you also have a lot of catching up to do. Most Americans don't have enough savings to support themselves for more than three months if they lost their jobs, and more than a third of people don't have enough savings to keep up with their expenses for one month, says a new survey by HSBC Bank USA.

Emergency Savings Fund: How Much Do You Need?

Financial experts used to recommend maintaining a three- to six-month emergency fund, but only 39% of Americans boast that level of savings, according to the survey. Now in the wake of the deepest recession since the Great Depression, experts recommend enough savings to last 12 months--a level achieved by only 11% of the population.

With unemployment in the double digits and a glacially slow recovery projected, the need to save is obvious. But just how prepared are you? Answering that question is a good place to start for improving your finances.

Your Current Savings Picture

Look at your budget--or create one if you haven't already--and figure how much money you need each month to pay the critical expenses, such as rent or mortgage, other debt payments, food, gas, utilities, and other things you can't do without. (Don't forget about setting aside a portion each month for semi-annual expenses, such as car insurance.)

Now look at your liquid savings--money you can access quickly and isn't dedicated to something else, such as retirement. Don't count equity in your home as an emergency fund; your house is not an ATM machine.If you need money because of a job loss, you are unlikely to get approved for a home equity loan. Divide your liquid savings by your monthly expense total to figure out how many months you could sustain yourself if you lost your income.

Your Savings: Your Have To Start Somewhere

Afraid to look at the amount? Ignorance is not bliss. It's better to know now than in an emergency that you don't have enough savings. Facing reality--even if the picture is bleak--is the first step to addressing the issue. A year from now you'll be glad you started today.

If you have more than three months of living expenses saved, you're ahead of 61 percent of Americans, according to the HSBC survey. But remember, that's still not enough. Unless you've got more than a year's worth of income socked away, you've got more saving to do.

CDs, Money Market, Savings Accounts

You need liquid assets for emergencies--money you can get your hands on quickly and easily, unlike stock market and real estate investments. Savings accounts and money market accounts as well as short-term CDs are your best bets. Avoid long-term CDs for emergency funds, because you'll pay a hefty withdrawal penalty if you take your cash out early. Shop around for the best interest rates.

Define "Emergency" Savings

Start by putting 10% of your income into savings, and have the amount withdrawn automatically from your checking account. Can't part with 1% and meet critical expenses? Then do what you can. The National Foundation for Credit Counseling says define "emergency" and stick to that definition. Don't fall into the trap of dipping into emergency savings to satisfy cravings for shiny new things.


HSBC Bank • Press Release: HSBC Survey: Americans Saving More But Still Not Enough • Sep 03, 2009 • http://finance.yahoo.comhttp://finance.yahoo.com/news/HSBC-Survey-Americans-Saving-bw-1177048108.html?x=0&.v=1

Walter Updegrave • 3 steps to financial security: Save, save, save • Apr 09, 2009 • http://money.cnn.com/2009/04/02/pf/expert/high_yeilding_CDs.moneymag/index.htm?postversion=2009040305http://money.cnn.com/2009/04/30/pf/expert/saving_tips.moneymag/index.htm

National Foundation for Credit Counseling • NFCC Underscores the Necessity of Saving • 0000-00-00 • http://www.nfcc.orghttp://www.nfcc.org/FinancialEducation/consumertips/NecessitySaving.cfm

Lauren Weber • Le Cheap, C'est Chic • Sep 17, 2009 • http://www.forbes.comhttp://www.forbes.com/2009/09/16/economy-saving-consumerism-opinions-contributors-lauren-weber.html

Disclaimer:This content is not provided or commissioned by American Express. Opinions expressed here are author's alone, not those of American Express, and have not been reviewed, approved or otherwise endorsed by American Express. This site may be compensated through American Express Affiliate Program.

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