This is my reply to Free Money Finance’s post about Americans who can’t afford a 1k emergency expense.
CNN Money tells us that most Americans can’t afford a $1,000 emergency expense. Their thoughts:
64% of Americans don’t have enough cash on hand to handle a $1,000 emergency expense, according to a survey by the National Foundation for Credit Counseling, or NFCC, released on Wednesday.
Only 36% said they would tap their rainy day funds for an emergency. The rest of the 2,700 people polled said that they would have to go to other extremes to cover an unexpected expense, such as borrowing money or taking out a cash advance on a credit card.
How about you? Can you handle a $1,000 financial emergency? Could you handle more than that?
Yes. I do actually have $1,000 in cash on hand. And I get paid tomorrow so I’ll actually have more.
But, $500 of this is earmarked for wedding spending and the other is for emergencies. So I would be part of the “tapping the rainy day funds” for a $1,000 emergency.
Do I have $1,000 in my checking account? No. I wish I did. But I don’t. At least not right now. I do have the cash available to cover such an expense but I would be borrowing from other funds.
Could I handle more than a $1,000 emergency expense? Not really. I could always cash out the $5,000 in my Roth IRA (all contributions) so I’m covered up to 5k. Beyond that? If I could pay via credit card, then yes. I could hand up to $10,000 in theory but paying that back would be a bitch and I would resort to other methods before using my credit cards or taking out a crazy pay day loan. If I needed more than I had I would first ask family and friends as well as do whatever I possibly could to earn money fast.
This makes me really want to build up our emergency fund soon. I know it’s been a couple months of unavoidable extra expenses but those make me even more determined to build up some cash reserves by the end of the year. By the end of 2011 I want to have at least $2,000 hanging around in savings “just in case” for emergencies. That’s a lot more than my current emergency fund of $500 and would make me feel a lot better.
Luckily since I don’t own a car or a home I wouldn’t have many expenses that would cost over $1,000 beyond medical and those would be covered by my health insurance. So for now I’m not terribly worried about this but I do want to get to a more comfortable spot by the end of the year.