Emergency savings 101
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Emergency savings 101
TESS VIGELAND: It was a very special week, this past week. You may not have noticed, but your bank account would like you to. It was America Saves Week. Uncle Sam is worried, and how, that we’re not saving as much money as we should. A recent survey found only 40 percent of Americans have any emergency savings at all. And that prompted some government agencies and consumer groups to say that people who haven’t started a savings account, well, they better get started right now. Liz Pulliam Weston has a savings account. She’s a personal finance expert at MSN. Liz, should most of us have some sort of emergency fund?
LIZ PULLIAM WESTON:
My argument would be you have two priorities that are more important. One, you have to save for retirement. That’s got to be your number one priority for almost everybody.
VIGELAND:
Number one even before having two or three months’ salary set aside?
PULLIAM WESTON:
Yeah. Oh, absolutely. Because it takes so long to set aside two or three months salary. You don’t wanna be giving up that for 401k match. You don’t wanna be giving up the chance to put away money that can grow tax-deferred. That’s just too expensive. And then number two, you wanna be paying off any credit card debt. So emergency savings has to come third in that lineup of priorities. And it would be nice if we could do all the things at once. But, really, if you have extra money, it should be going towards those credit cards.
VIGELAND:
What if you don’t have extra money? I mean, the government-here, this week, telling us, you must save. You must save. You must save. And for a lot of people, it is literally impossible.
PULLIAM WESTON:
A lot of people think it’s impossible. I think it’s a matter of priorities for many, not for all. There are people where savings is, is impossible.
VIGELAND:
Yeah.
PULLIAM WESTON:
You know, people who are on disability, who have no other income. Situations like that, I mean, that’s a hard situation to fix. But most of us have a lot of leeway. We’ve confused wants with needs. How many times have you heard a person say…
VIGELAND:
That doesn’t sound familiar at all. No. No. No.
PULLIAM WESTON:
How many times have you heard a person say, I need a new car? I need this. I need that. We don’t realize those are not needs. And once we say need, we’ve set it up as a requirement for living.
VIGELAND:
All right. So the bottom line is, yeah, we do need to have emergency savings. But your argument is still that retirement fund first, pay off the credit cards second, and then start looking at a kitty.
PULLIAM WESTON:
I would say put aside at least something to start off with. Have a 100 bucks in your checking account so that you’re not bouncing checks all over town. Put another 400 or 500 in your savings account. That’s gonna cover you for most emergencies. And then, yeah, get going on that retirement savings. Get going on those credit cards. Once those are taken care of, then building that emergency fund should be your priority.
VIGELAND:
All right. Well, I promise to do all, all of those things right away, Liz.
PULLIAM WESTON:
Good girl, Tess.
VIGELAND:
Thanks for coming in.
PULLIAM WESTON:
Anytime.
VIGELAND:
Liz Pulliam Weston is a personal finance columnist for MSN and author of Your Credit Score.
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