We’ve gotten some mixed news lately on the state of Americans’ finances. Our recent Financial Security Index found more people are saving for emergencies, which is great! However, 24 percent of people still have no emergency savings whatsoever.
Certainly, as the economy has grown and grown over the past eight years, many people haven’t seen a similar growth in their income. A key figure in the June jobs report, released last Friday, shows as much.
No pop in our paychecks
The economy added 222,000 jobs in June, a better-than-expected number, while the unemployment rate inched up to 4.4 percent — a low level by historical standards. But many are still hoping for better news on wages (like waiting for a bus that never seems to arrive). The Labor Department says average hourly earnings are up just 2.5 percent over the past year, less robust than in previous economic expansions.
On the flip side, looking at spending against incomes is encouraging. While incomes rose 0.4 percent in May, spending was up a tame 0.1 percent. That sent the nation’s savings rate to 5.5 percent, the highest since September 2016.
Emergency expenses: Not if, but when
Unexpected expenses can lead to severe financial problems if you’re not prepared to handle them. Whether it’s a health emergency, a home or car repair, or something else, it isn’t a question of whether financial surprises will occur — they definitely will.
That’s why it’s important to work toward having at least six months of expenses saved. This money should be easy to access but not tapped for anything other than its intended purpose. Savings accounts are a good place to stash the money.
3 steps to grow emergency savings
Follow these basic steps to grow your emergency savings if you have no savings cushion or want to continue padding what you have:
- Analyze your monthly budget. If you don’t have one, here’s how to get started. There’s no other way to know how your finances are being managed on an ongoing basis. Look for opportunities to boost the money coming in and decrease money going out. Then, direct that money toward your emergency savings.
- Make monthly savings a priority. The best step you can take is to set up a direct deposit into a separate savings account to make saving automatic. Compare savings accounts to make sure you’re getting a solid return on your money.
- Set it and forget it. As tempting as it might be to tap your emergency savings for regular expenses, remember the purpose is to guard against the unexpected.
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