Often, it’s only a matter of time for emergency situations — whether involving a child’s sickness, auto repair, or home renovations — to arrive.
According to a Bankrate Money Pulse survey, 45 percent of Americans said they faced a surprise expense in the last year, yet only 41 percent are prepared to pay for the unexpected cost from their savings, while 20 percent would slash their spending in another area to cope.
The rest would use borrowed money, their credit card, or retirement funds.
In the new report, the financial emergencies were most commonly related to transportation, appliances, or home-related breakdown, injury, or illness.
Who Is Best Prepared For An Emergency?
Millennials outperformed their parents or other generations in this aspect, as they were most prepared and likelier to tap their savings. Forty-five percent claimed they would pay for surprise costs with their savings, while 24 percent said they would cut back on spending instead of borrowing or using their credit card.
The elderly or those ages 71 and above reported the highest credit use for unexpected expense at 28 percent.
Interestingly, in its poll conducted via phone interviews with 1,003 adults, Bankrate found that childless adults are most likely to use their savings — 43 percent of them — compared to parents with children at 36 percent. This may partly explain why millennials, who typically wait longer to bear children, are most prepared for an emergency situation.
In addition, Bankrate discovered that half of the top-earning households, those who earn at least $75,000 each year, as well as college graduates run short on savings to pay for a $500 auto repair or $1,000 emergency room expense.
Budget Cuts And Getting Better Prepared
One way that Americans deal with financial emergencies is to cut spending, with different age groups choosing to cut their expenses in varying ways.
Thirty-seven percent of respondents said they would likely to reduce their alcohol consumption to save more money, with 51 percent of millennials favoring the decision. The younger ones, at 46 percent, were also the largest group to say they would probably go easy on buying coffee at a café or doughnut store — a decision echoed by 44 percent overall.
Author David Bach said there will always be things that are out of people’s control.
"People lose their jobs, their health, their spouses. The economy can go sour, the stock market can drop, businesses can go bankrupt,” said Bach, who turned into a millionaire by age 30 through enhancing his automated savings in a few year’s time.
Americans are believed to be increasingly aware of the need to save for a rainy day.
"I wish I could say it's because people are smarter about it, but it's really the fear factor," added Ohio-based financial planner Carina Diamond, who advised having emergency cash in the bank instead of borrowing or tapping into home equity.
Budget limitations govern practically all aspects of running the household, including the decision to serve prepackaged, processed foods at the family table.
