Several studies conducted over the course of 2012 have demonstrated that many consumers are severely lacking a cash cushion to protect them in the face of unexpected expenses. A high percentage of Americans said they would not be able to cover their expenses for a six-month period if they lost their jobs and many noted they would be forced to rack up credit card debt to meet their needs. In an attempt to avoid this dangerous scenario, it appears that many are prioritizing building an emergency fund in 2013.
A new study conducted by The Street and GfK found that one in five participants said they will focus heavily on building up their cash reserves for emergencies this year. Many cited specific events that occurred in 2012 – such as job losses, Hurricane Sandy and fiscal cliff concerns – as reasons for being more proactive about protecting themselves from sudden costs.
“Having endured the worst financial crisis in memory, people are inclined to change their behaviors to offset the odds that they will have to face that hardship again,” said Harrison Lazarus, a financial consultant and founder of Harrison Lazarus Advisors.
Low-income earners more likely to save for emergencies
The study also found that workers with lower incomes were more likely to cite saving for emergencies as their top goals versus other income demographics. For example, 30 percent of people making annual incomes of less than $20,000 gave this response, as did 25 percent of those earning less than $30,000 a year. While those with lower incomes may be particularly vulnerable to the financial ramifications of a sudden repair or medical bill, all income brackets should focus on protecting their assets from harm. A sudden job loss for an high net-worth executive with a $1 million mortgage can be just as financially devastating as someone who only makes $50,000.
Starting off the new year by consulting with a credit counselor or adviser on the best ways to save can be a proactive way to develop a sound and realistic budgeting plan. In many cases, consumers may make ambitious goals in January and get burned out in February. To prevent this from happening, individuals are advised to seek financial guidance as a strategy to stay motivated.