The Importance of Comparing your Emergency Savings fund to your Credit Card Debt
From the day you got your first dollar, you have probably had people advising you on the importance of saving as much as you can. Having an emergency savings fund is important, and getting in the habit of regularly adding money to this fund is something everyone should do. People often wonder how much money they should have in their emergency funds. There is no easy answer that is perfect for everyone. For example, someone who has an apartment and no car payment will need a smaller emergency fund than someone with a large house, kids in college and several vehicles. With all of this in mind, though, it is always a good thing to have as much saved up as you can. In fact, there is a little comparison you can make with your finances to help you sort out your own personal savings plan.
The Great Recession of a few years ago proved just how crucial it can be to have an emergency savings fund. But American consumers don’t seem to be that great at saving money. It’s not that people don’t try, it’s just that saving money is sometimes easier said than done. In fact, a recent study from Capital One revealed that over 26 percent of Americans say that starting an emergency fund is their top financial priority for 2016. Financial experts agree that emergency funds don’t just prove to be useful during a crisis, they are also the foundation of financial security, and people should not put off getting them created.
People know how important it is to save money, and about 36 percent of people who invest money are expecting to deal with major life events this year. About a fifth of Americans think they may have to deal with aging parents, and 18 percent of people under 45 expect either their parents or children to move into their home in 2016. And even if you are among the 53 percent of investors in America that don’t expect to deal with major impacts to their money, it never hurts to have a financial parachute, just in case.
According to Anthony D. Criscuolo, a financial planner from Ft. Lauderdale, “A good rule of thumb is to have an emergency fund that covers at least six months of expenses. If you are older and/or have dependents, you may want to be even more conservative and build up 12 months of expenses.”
It is still apparently difficult for American consumers to get the swing of creating/growing an emergency savings fund. It is all about maintaining balance with your finances. About 52 percent of Americans have more money in their emergency savings than they have in credit card debt. That is a bit lower than the 58 percent who had more in their savings than in credit card debt last year. On the flip side, about 22 percent of consumers have more credit card debt than they have saved up, and 21 percent have no credit card debt and no emergency savings fund. This is interesting – Millennials are more likely than any other generation to have more in their emergency savings funds than they do in credit card debt.
If you are trying to get into good financial shape, and don’t know exactly how much you need to have in your emergency fund, start off with a simple comparison: Compare how much you have saved up to the amount of your credit card debt. If you have more debt than savings, start paying down high credit card balances. As you pay those cards down, start adding more to your savings account. Make this a priority and a habit. If you stay consistent, you should have a sizable emergency fund built up and less to pay out in credit card bills each month.
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