According to a report from researchers at the University of Chicago, many adult Americans would have a rough time if they missed more than one paycheck. The study also shows the importance of an emergency fund.
The report found that 51 percent of working adults admitted that if they missed more than one paycheck, they’d need to dip into savings to cover necessities. The findings mirror a separate study from the Federal Reserve, which showed 41 percent of Americans would have to tap their savings accounts if faced with $400 emergency.
The University of Chicago and Fed reports sound dire on their face but they weren’t all bad news. The former found that 73 percent of adults would know to cut back on non-essential spending as the first defense against a missed paycheck. That’s good, as it signals adults know to avoid using credit cards as a crutch. Meanwhile, as Marketwatch notes, the Fed study revealed that the percentage of people who are dipping into savings to cover the basics has been decreasing over time: In 2013, 50 percent of adults reported tapping savings to pay for necessities.
These reports and others like them highlight the need for an emergency fund in addition to savings. You should have at least three months worth of necessities set aside in this account. If you don’t, look over your budget and cut back on spending until the fund is well-stocked. Even if you’re only adding $50 a month, having something stashed away is better than nothing. Do this by automatic transfer. Then, try to increase the amount you’re regularly adding to your savings as soon as you get used to the current transfers of funds.