One piece of financial advice that you have probably heard over and over again is the need for an emergency savings fund.
The thinking goes that everyone should have three to six months’ worth of living expenses set aside in the event of a sudden job loss or to cover a large unexpected expense, like a car repair or medical bill.
An emergency fund means you won’t have to turn to credit cards or high-interest loans in the event of a financial setback.
Despite the prevalence of this advice, it appears many people have been unable to set aside that much money. But maybe that situation is beginning to change.
In the latest survey by personal finance site Bankrate.com, 33% of Americans say they do not have more emergency savings than credit card debt. That includes 21% who say their credit card debt exceeds their emergency savings and 12% who indicate they have no savings or credit card debt.
While one in three Americans are financially ill-equipped for an emergency, that is down from 41% in 2017 and 43% in 2016 and is the lowest level in the eight years of the survey.
“People have recognized the importance of savings since the financial crisis and it is only recently that we are seeing some progress in Americans ability to save,” said Greg McBride, chief financial analyst for Bankrate.com.
Fifty-eight percent say their emergency savings fund exceeds their credit card debt, which is up from 52% in the last two years and ties 2015 as the best seen in eight years.
McBride cites low unemployment, broader growth in household income and a renewed prioritization on savings over the past decade as factors in the increase.
The key to starting and building an emergency fund: Successful saving is all about the habit and paying yourself first by automating the savings through direct deposit, McBride said.