You Won’t Believe How Many Americans Can’t Cover a $400 Emergency

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An emergency expense can cause stress, but having savings could help. Find out how many Americans can’t afford to pay for a $400 emergency with cash. [[{“value”:”

An emergency fund is a powerful financial tool. With extra cash in the bank, you can more easily navigate challenging life situations and unexpected costs. Unfortunately, many Americans have meager savings — some have none at all. That’s not ideal.

Without savings, many people pay for costly emergency bills using credit cards, which could lead to more financial struggles and debt. Let’s explore how many Americans can cover a $400 emergency and discuss how to prepare for future expected expenses.

37% of Americans can’t cover a $400 emergency with cash

According to research from The Ascent Motley Fool, a significant number of Americans are unprepared to cover a $400 emergency expense using cash from their checking or savings accounts. Data from the Federal Reserve shows that only 63% of Americans could cover a $400 emergency expense using cash. That means 37% can’t afford to do that.

Many people without enough savings would use a credit card to cover a $400 emergency expense. However, using a credit card for emergencies puts you at risk of accumulating debt. If you don’t pay your entire statement balance off, you’ll be charged interest.

Credit card interest is expensive, so it can be difficult to climb out of debt if you charge more to your card than you can afford to pay off. It’s a good idea to prioritize building an emergency fund to avoid using a credit card when in a tough spot.

Don’t feel discouraged if you can’t afford to cover a $400 expense with cash. It’s never too late to start saving. Now is a great time to begin building an emergency fund. And if you need to use a credit card during an emergency, consider opening a 0% APR credit card. The best way to avoid interest and debt is to pay your debt off before the 0% APR promotional period ends.

Start saving now to prepare for future unexpected costs

You’re not alone if saving feels impossible due to your current financial situation. But I have some good news: You don’t have to start with a massive savings goal. It’s OK to start small. Any money saved will put you in a better position than having zero savings.

Even saving $40 a month can make a difference. If you set aside $40 monthly for an entire year, you’ll have $480 saved. A few hundred dollars in savings could help you avoid using a credit card during an emergency. If you can only save $10 monthly, that’s OK, too.

If you struggle to remember to save, we recommend automating the savings process. You can set up automatic transfers from your checking account to your savings account through your bank’s website or mobile app. You can choose a schedule and amount that works best for you. This strategy can save you time and help you stay on track with your goals.

Earn interest while your money sits in the bank

Whether you have $20, $200, or $2,000 saved, avoid keeping too much in your checking account. Why? Most checking accounts don’t earn interest, so you’re missing out on free money.

By keeping your extra money in an interest-earning bank account, you can earn interest while your cash sits in the bank. Opening a high-yield savings account is a great way to get rewarded for saving.

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The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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