In Celebration of America Saves Week and Connecticut Saves Week February 25th through March 2nd, 2019
Have you ever been taken by surprise by an expense such as a car or home repair, a refrigerator that needs to be replaced immediately, or school expenses? Often we need to act quickly so that we can get to work, keep a small problem from getting bigger, or make it possible for a child to participate in school activities. Managing regular bills can be hard enough without shock of additional bills. In one of the professional development workshops I teach, I ask the participants work together in small groups to list examples of unexpected financial events in their lives and those of their clients. As you might guess, once they get started, they have no trouble creating very long lists.
Several recent studies have indicated that many of us are not prepared financially to deal with the unexpected events in our lives. The Federal Reserve Report on the Economic Well-Bing of U.S. Households in 2017 (https://www.federalreserve.gov/publications/files/2017-report-economic-well-being-us-households-201805.pdf) pointed out the 40% of households could not cover an unexpected $400 expense. DataHaven’s 2018 Community Wellbeing Survey (www.ctdatahaven.org/reports/datahaven-community-wellbeing-survey) found that 50% of Connecticut adults estimated that their savings would last less than 6 months. As challenging as it can be to deal with unanticipated bills, there are steps we can take to improve our ability to weather such events in the future.
Create an Emergency Fund
Having a cash cushion can help increase your family’s or household’s financial stability. Knowing you have money available can help reduce financial stress and give you more options for how to handle different situations.
How do I get started?
Make it your goal and develop a plan to achieve it. Even a small amount of money saved over time adds up. If you could save $10 a week for a full year, you would $520. Will you be receiving a tax refund? Plan to save at least a portion. A review of your current spending can be helpful in identifying opportunities to save money. Many of my workshop participants have suggested setting up a separate savings account specifically for this purpose. Direct deposit is an excellent way to make saving a habit.
How much money do I need in an emergency fund?
While the best answer to this question really depends on the specifics of your situation, here are a couple of suggestions. If you currently do not have money set aside for emergencies, set a goal with a dollar amount such as $500 or $1000 and timeframe by which you plan to achieve it. Identify the steps you are going to take to help you move closer to that goal. If you already have some money set aside, calculate how much money you would need to cover basic living expenses for a period of six months or possibly longer. If that amount of money seems like more than you can possibly save, do not let that be a deterrent. Break it down into a series of short-term goals. For example, focus on what you feel you can reasonably do over the next three months and keep track of your progress.
Anticipate the Unexpected—Plan!
It is human nature not to want to face certain realities. However, we could likely prepare better if we anticipated some likely events and planned how to deal with them effectively. For example, appliances have a limited life expectancy and will need repair or replacement. Tires for a car anticipated to last for an approximate amount of mileage. A home will require maintenance to its various systems. Just as a weather forecaster keeps track of different conditions to anticipate what is likely to happen with the weather, we can also do that in regard to our finances. Though we will not be 100% correct all the time, we can develop a plan to help us be better prepared.
For more information, contact Faye Griffiths-Smith, UConn Extension Personal and Family Financial Educator at faye.griffiths-smith@uconn.edu or visit www.financialliteracy@uconn.edu.
Connecticut Saves Week February 25 through March 2 is a great time to assess your savings and make plans to improve your financial security. Part of the national America Saves Campaign, the Connecticut Saves Coalition is coordinated by the UConn Extension Financial Education Program with the support of these partnering organizations: the Connecticut Department of Labor; the Connecticut Department of Banking; Connecticut State Library; Hartford Job Corps Academy; the Better Business Bureau Serving Connecticut; Human Resources Agency, Inc.; the Connecticut Association for Human Services; Chelsea Groton Bank; and others. Visit www.connecticutsaves.org.
Article by Faye Griffiths-Smith