When it Rains it Pours: The Importance of an Emergency Savings Account
Emergencies. We’ve all had them. Whether it’s having to call a locksmith or buy a last minute plane ticket to see a sick loved one, life will always find a way to throw you financial curveballs. More often than not, the cash that you’ve saved will make the difference between a minor challenge and a total crisis.
For many families, the Great Recession marked a turning point in their financial security. According to a survey conducted by the Federal Reserve in 2013, 57% percent of respondents who had savings before 2008 indicated that they had spent at least a portion of those funds. Nearly half of the respondents said that they would not be able to cover a $400 emergency without borrowing money or selling some of their possessions. With those numbers on the table, let me tell you a story.
Three months ago, I lost my job and immediately went into strategy mode. The first thing I did was file for unemployment insurance. I knew that it would be a tight squeeze to make that work in NYC, but it would be enough to keep me afloat as long as I revised my budget. No more eating out, no more dog walker, no more frivolous subscriptions. I felt a sense of control and calmness that only a budget can provide.
After a few weeks however, I realized that things were not moving according to schedule. My unemployment claim dragged on to the point that I thought it might never get approved. After going four weeks without any decision on my claim, I began to unravel. CUE: Total Panic Mode.
Just before getting fired, I had received my tax refund and shuttled it immediately to a high-yield online savings account. That choice would prove to be invaluable. After all, not everything can be paid for with a credit card and using you card for a cash-advance is not advisable in times of prolonged financial uncertainty. After a few days of being terrified about how I was going to pay my rent, I remembered the refund and checked my balance. For a week my mantra was “Three months. You can survive for three months. You can do this. Three months.”
Unfortunately, when it rains it pours and it seems that the spring of 2016 brought monsoon season to my house. The day I got fired, I had spent a lot of time at the vet with one of my cats who was quite sick. Exactly four weeks later, his problem worsened and we ended up at an animal hospital in the middle of the night. Between the two visits alone I was staring down the barrel of a $2,000 gun.
Thankfully, between credit cards and a meager safety net of savings, I’ve managed to weather this storm. If things had been even slightly different and I didn’t get my unemployment benefits or if I didn’t have access to credit, I’m not sure what I would have done. This experience has been so uncomfortable and at times terrifying in a way that is hard to conceptualize if you’ve never lived it. And yet, it has also been a blessing in disguise.
I know that there are far too many people whose circumstances would have made it impossible to navigate the triple-whammy I faced earlier this year. Seeing the reality of a true financial emergency play out in my life has amplified my commitment to being a diligent saver.
If you don’t have a savings account already, take some time to consider the options available to you at brick and mortar banks as well as online savings accounts. With a savings account, a budget and a plan, you can be better prepared for your own rainy day.