Back in 2010, NPR’s Planet Money asked readers to share their most important reason for saving. To no one’s surprise, 35.2 per cent said they sock away funds for a rainy day. So were they saving enough?
Judging from the report the Federal Reserve released on Monday, clearly not.
Though people with higher incomes said they’d like to save more, “up and down the income spectrum, people said a rainy day fund should be between 9 per cent and 14 per cent of their annual income,” reports NPR. In other words, these people believed that a month’s worth of income would be enough to get them through a financial crisis like a job loss or illness.
Given that the average American family’s net worth has declined 40 per cent from 2007 to 2010, it makes sense that we’re finding it harder to save. Aside from the collapse of the housing market, we still owe more than $800 billion in credit card debt to lenders and are having a hard time paying it down, according to Credit.com. Other families are still strapped for cash due to soaring costs of college loan debt, which the Consumer Financial Protection Bureau pegged even higher than the trillion-dollar mark.
Overall, the numbers are pretty depressing since most experts recommend saving at least nine months to a year of income in an emergency account.
“People are often out of work now for as long as nine months, and if they don’t live on savings, they live on credit. So when they replace their job, they are behind because now they have debt to repay,” Gail Cunningham, spokeswoman for the National Foundation for Credit Counseling told Bankrate earlier this year.
To make sure that doesn’t happen to you, here are a few ways to beef up your piggy bank per YM contributor Trent Hamm:
1. Use automatic transfers. “Set up an automatic transfer between your checking and savings accounts, making sure that you’re not pushing your checking account balance down to zero,” said Hamm.
2. Forget about it. Once everything’s set up, “be vaguely mindful of it,” he said. “Don’t let your checking account get low enough so that the automatic transfer has any danger of causing you to overdraft.”
3. Do it slowly, but surely. A little goes a long way, said Hamm, noting that “if you’re putting in $20 a week, for example, you’ll have a little over $1,000 in your emergency fund at the end of the year.” That’s plenty money to handle the unexpected trip to the dentist or car repair.