1 in 5 Americans can’t cover 2 weeks of bills with savings

A person looks anxiously at his financial documents and laptop.

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Everyone in that boat is in a pretty dire situation.

Key points

  • It is necessary to set aside money for emergencies and unplanned bills.
  • While some people are prepared, others may struggle in the event of a layoff or emergency expenses.
  • Temporarily cutting back on discretionary spending and getting another job can help you build your emergency savings.

You’ll often hear that building an emergency fund should trump any other financial goal you might have. But a new report from the CFPB (Consumer Financial Protection Bureau) finds that many are missing out when it comes to emergency savings.

In its research, the CFPB asked the question: If your household lost its main source of income, how long would you be able to cover expenses? In response, 27% said they could cover their bills for more than six months, while 21% said they could cover their expenses for three to six months.

But alarmingly, 21% of respondents said they could cover less than two weeks of bills in that situation. And that’s a pretty scary thought.

You cannot afford to be unprotected

There’s a reason financial experts have long urged consumers to keep enough money in their savings accounts to cover at least three full months of essential expenses. You never know when a huge bill might hit you out of the blue, like a house or car repair that can’t be put off. Without a solid emergency fund, you could immediately go into debt to cover such an expense. And that debt could easily accumulate and cost you a lot of money in interest over time.

Furthermore, you never know when you might lose your job and struggle to find another. The reason experts caution against keeping quarterly bills in savings is that it can easily take time to search for positions, apply, go to interviews, and get hired elsewhere. And during an economic downturn, it could take even longer to find a job after being laid off. So you really want to have a nice cushion in the bank in case you have to live largely or even partially off your savings for a while.

And if you think you can always just take out a layoff personal loan to cover your bills, keep in mind that without income, you may not qualify for one. So don’t assume that you won’t need savings in that situation.

How to build or increase your savings

If your emergency fund needs work, there are steps you can take to boost it. First, set a budget for yourself and start cutting non-essential expenses. You can’t skip rent or mortgage payments. But you be able to promise to stop eating out and cook all your meals at home until your savings account is in better shape.

At the same time, it pays to consider getting another job to quickly increase your cash reserves. If you limit yourself to just reducing consumption, it could take a long time to build up a good level of protection. And then, you run the risk of something happening Before you really had the opportunity to make nice progress in your savings efforts.

Having some money in the bank is better than none at all. But if you’re in a position where you couldn’t cover two weeks of bills with the money in your savings, then it’s really important to make building an emergency fund a priority — and soon.

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