Nearly half of Americans have $500 or less in their savings accounts, an amount that leaves them vulnerable to unexpected expenses, according to a GOBankingRates survey of 1,063 U.S. adults conducted in November 2023.
About 29% of respondents have between $501 and $5,000 in their savings accounts, while the remaining 21% of Americans have $5,001 or more.
Few hold much cash in their checking accounts as well. Of those surveyed, 60% report having $500 or less in their checking accounts, while only about 12% have $2,001 or more.
The lack of cash in either savings or checking accounts suggests that many Americans are living paycheck to paycheck. This leaves them vulnerable to unexpected expenses, underscoring the importance of having an emergency fund, if they’re able to build one.
Why an emergency fund is important
Financial planners commonly recommend keeping a reserve of cash, known as an emergency fund, on hand to cover unexpected expenses. Yet many Americans don’t seem to have one.
There are many reasons for this. In some cases, Americans may struggle to make ends meet during times of high inflation. But in others, it may be a matter of affluent professionals who aren’t in the habit of saving money.
“The inability of Americans to withstand an emergency costing $500 or even $1,000 can be financially detrimental, with a domino effect on their life,” says Alex Lozano, a certified financial planner and founder of Lozano Group Wealth Management.
That’s because people often rely on high-interest credit cards to cover unexpected expenses, he says.
“Accumulating debt can lead to a cycle of repayment and interest charges that can be difficult to escape,” says Christopher Lazzaro, chartered financial consultant and founder of Plan For It Financial. “An emergency fund helps you avoid falling into this debt trap.”
Lazzaro recommends aiming to build an emergency fund that’s worth three to six months of your expenses, although “everyone’s situation is going to be different.” Someone…
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