A growing number of Americans are in dire need of a rainy day fund. According to a new survey from the home repair service HomeServe USA, some 50 percent of Americans have $500 or less saved up for a financial emergency. That includes nearly 1 in 5 (19 percent) who have nothing in savings for an unexpected need.
A big factor in the lack of savings by U.S. households is the nation's growing debt load, which is on pace to reach a 10-year high later this year. The problem is many people have gone further into debt due to their lack of savings, and that increased debt prevents them from saving. "Not having emergency savings is the first road to getting into debt, and once you're into that spiral it's very difficult to climb out," says John Lopez, professor of finance at the University of Houston's Bauer College of Business.
Lopez tells KTRH that savings must become a priority in people's budget. "You have to have a fund where you have enough money to cover the things that life throws at you...the car gets towed, you get a parking ticket, there's an emergency trip you have to make," he says. And then there's the ultimate unexpected turn---loss of job. "If you have three months of living expenses in a savings account, then you can survive for three months while you're looking for another job," says Lopez.
Recent trends show that Americans are slowly starting to save again now that the economy has come back from the Great Recession. For those who haven't been feeding the piggy bank, Lopez recommends starting now on your three-month emergency savings account. "I think it's important for people to take at least 10 percent of every dollar that comes into their household and put it into a savings account...that's the 'pay yourself first' strategy," he says.