The No. 1 Habit That Can Help Americans Feel Financially Secure
Americans are feeling surprisingly optimistic about their finances, despite economic uncertainty all around them. A recent Nationwide Financial report found 70% believe they can improve their situation over the next five years, and 60% expect their income to grow.
And yet, only 58% have an emergency fund to cover unexpected expenses, leaving millions financially vulnerable when life's surprises strike.
Check Out: 10 Frugal Money Habits That Can Help You Save More Starting Today
Learn More: How Middle-Class Earners Are Quietly Becoming Millionaires — and How You Can, Too
Here's why building an emergency fund may be the single most important step people can take to protect both their current finances and long-term goals.
Why Every American Needs an Emergency Fund
An emergency fund can provide a financial cushion when life takes an unexpected turn. Experts often recommend saving three to six months' worth of living expenses to help cover unforeseen costs, from major car repairs to temporary income disruptions.
"An emergency fund gives you some breathing room when life doesn’t go according to plan, which is bound to happen for everyone at some point," said Craig Hawley, president and COO of Nationwide Financial. "It can help you handle an unexpected expense without taking on debt or tapping into savings earmarked for longer-term goals like retirement."
The Nationwide report found that Americans increasingly value protecting their existing assets as much as growing them, with 37% saying that avoiding losses and achieving gains are equally important financial priorities.
"Emergency savings should be a foundational part of their holistic plan to accomplish this goal," Hawley said.
Keep Short-Term Emergencies From Wrecking Long-Term Plans
Having cash set aside for emergencies can help prevent short-term financial setbacks from disrupting long-term plans.
When people don't have emergency savings, they may have to rely on credit cards, loans or withdrawals from retirement and investment accounts when unforeseen expenses arise. An emergency fund can help reduce those risks and allow savers to stay focused on their broader financial goals.
"An emergency fund can act as a first line of defense, helping protect the progress you’ve already made toward longer-term goals," Hawley said.
Hawley views emergency savings as an essential component of a comprehensive financial strategy.
How To Build an Emergency Fund
If you're starting from zero, saving up three to six months' worth of expenses can feel daunting, but you don't have to do it all at once.
"The most important thing is to just get started," Hawley said. "Start with what you can realistically save on a regular basis and work to make it a consistent habit to gradually build from there."
The right amount will depend on your income, expenses and personal circumstances.
"And as your income, expenses or family situation changes, revisit how much you have set aside to determine whether it still feels like the right amount," Hawley said.
"It’s important to maintain discipline around this fund and avoid tapping it for things that are not true emergency situations. A financial professional can help you consider emergency savings as part of a broader plan, alongside retirement savings and other financial protections."
The Bottom Line
Nobody gets excited about a savings account that just sits there, but that’s the point. Your emergency fund’s job is to stay boring until the day it saves you.
“A financial professional can help you consider other ways to protect against more significant potential gaps, including how you would manage a longer-term loss of income, unexpected market volatility or even living longer in retirement than you may expect,” Hawley said. “The goal is to build a plan that protects against big and small challenges, including those you may be able to anticipate and those you may not see coming.”
Start with whatever you can spare this month, park it somewhere you won’t raid for weekend plans and let it do its unglamorous job.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
More From MoneyLion: