This is the first post to the FinanciallyEngineered.com blog! I could not find a more suiting topic, as we all are in the heart of a deep financial crisis due to a pandemic. The emergency fund is extremely important because I will never know when a pandemic will freeze a roaring economy. According to CNBC, 22 million Americans have filed unemployment since a record low unemployment rate of 3.5%. This indicates that unemployment will be somewhere around 13.5% at the end of April 2020, which will be dramatically higher than the 4.4% posted in March by the U.S. Bureau of Labor Statistics. Mid-March was the initial onset of the pandemic, which is the direct cause of the spike in unemployment.
The average American has $8,863 (according to CNBC) in a readily available account. How many months do you think that will allow the average American to pay their mortgage? According to the U.S. Census Bureau The median monthly payment for a mortgage in the United States is $1,500 ( I can only imagine what a payment would be the East or West Coast). This means the typical American can only pay his or her mortgage for roughly 5-6 months before they run out of that savings cushion. This does not take into consideration other monthly expenses.
That duration may seem acceptable until you look into how much the average American spends daily. According to the Bureau of Labor Statistics, we spend (on average) $164 per day! that equates to almost $60,000 annually! This would equate to approximately 2 months of standard living before the emergency fund is gone…. Needless to say this falls short of the 3-6 month cushion most financial guru’s say you should carry.
Build Up that Emergency Fund!
I will never have less than 6 months of expenses in CASH. The emergency fund is extremely important because I will never know when a pandemic will freeze a roaring economy. I also take into consideration dependents when looking at my emergency fund. I have discovered that emergencies tend to occur more often with children. Building up a savings safety blanket was one of my first goals when I shifted my perception on money management. Saving as much as possible will help reduce the stress of financial crises when they hit .