I feel like most people who are involved in the personal finance niche, either as a contributor or reading admirer, may not necessarily follow within these statistics but the fact is that 2/3 of Americans making between $50k and $100k wouldn’t be able to handle a $1000 emergency. The statistic is even worse for those making less than $50k, shooting up to a staggering 75% not being able to handle the $1000 emergency. One would assume though if you’re making over $100k per year you’d have absolutely no problem coming up with $1000 but the fact is that 38% of these earners still say they’d struggle to find $1000.
I Couldn’t Handle a $1000 Emergency
Though these statistics are quite alarming to read, the fact is that it wasn’t that long ago I put myself in this group of people and I totally understand how it’s possible. Five years ago coming up with $1000, no questions asked, would mean knocking on the door of the bank of mom and dad. Despite our well-earning incomes we had no savings. Part of it was my mentality. I couldn’t justify having money sitting in a bank account, seemingly doing ‘’nothing’’, when we owed so much money. At the time I was relatively fresh out of my second degree, newly married and a new homeowner. Why, when I owed over $100,000 in various non-mortgage debt would I sock away cash for a rainy day? Well I get it now.
When I went off on maternity leave, losing 60% of my net income and for the first time I felt financial constraint I hope to never experience again, I realized how close we were living to the edge and how stupid and dangerous it was, especially with a child now in the mix. It took us almost a year but soon enough we managed to save that $1000. It was a life changing moment, really. We no longer had to rely on someone if there was an emergency. We were educated adults, parents, who no longer had to rely on anyone to temporarily bail us out if something happened and it was a glorious feeling.
Why Doesn’t Everyone Just Start Saving?
It seems easy. You’d think after people read an article like this that they would smarten up and just start saving but the fact is that finances are complicated. In order for us to save that $1000 we needed to not only ‘just start saving’ but do a complete overhaul of our finances. We needed to learn to budget. We needed to face big scary personal numbers. We needed to get real. And it was hard. Really hard. It took us almost the entire year to get a good thing going where we were comfortable in our budget. We make colossal errors and screwed up more times than not, but we stuck with it because we realized it was the only way to live. Not everyone understands this though. Humans are naturally averse to taking the hard road. It seems much easier to live with your head in the sand and pray an emergency never happens than deal with the hard reality that is your own personal finance.
Aside from just being difficult there are other, real things, working against people saving too. Lack of proper living wages, low to minimal raises, growing expenses are all working against people in terms of both short and long-term savings. It is possible though. Hard, but not impossible. There are a ton of resources out there to help you get started. The Simple Dollar, Money Crashers, and Gail Vaz-Oxlande all have great posts about getting started.
Living a life assuming an emergency will not happen to you is not realistic. We’re all prone to them. While you should eventually build your savings beyond $1000, most experts agree that this is a great starting point. While we’re actively paying our debt off, we will keep a modest emergency fund of $1000-$1500 cash on hand but will increase once we’re debt free, also remembering that emergency funds aren’t a one-size-fits all.
Could you handle a $1000 emergency? Was there ever a point where you couldn’t?