This is my reply to Free Money Finance’s post about how most Americans can’t afford a $1,000 emergency expense.
CNN Money tells us that most Americans can’t afford a $1,000 emergency expense. Their thoughts about the issue and why people can’t afford this type of expense:
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.
Can I Afford A $1,000 Emergency Expense?
My response to whether or not I can afford a $1,000 emergency expense:
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 my 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.
I Can Afford A $1,000 Emergency Expense!
Update: Two years after originally writing this post I am now very confident in my ability to afford a $1,000 emergency expense.
In fact, I could afford several of these expenses. I have a basic Dave Ramsey style $1,000 emergency fund and then I have an additional emergency fund beyond that with several thousand dollars in it.
I have to admit, it’s much nicer to know that I can afford this type of emergency expense without having to resort to extremes like a credit card or payday loan. I used to worry a lot about this type of thing but becoming debt free, managing my money, using credit cards responsibly, simplifying my finances and build up an emergency fund has changed my life.
It’s a much less stressful living when you know you have what you need to take care of emergencies and problems that will pop up in time.
Can You Afford A $1,000 Emergency Expense?
Could you afford an emergency expense of $1,000 or more? According to the article most of you cannot afford this expense.
If you can’t currently afford this type of expense you should considering increasing your emergency fund like Dave Ramsey recommends and finding ways to get money when you have none. It’s always good to have a plan in place for the time when you will need this type of money.
The worst part about this type of expense is that it will come. It’s not really a matter of if but when. So do yourself a favor and get prepared!
How about you? Can you handle a $1,000 financial emergency? Could you handle more than that?
If you didn’t have the cash to handle this type of emergency expense, what methods would you use to come up with the money?