A survey by the Iowa Credit Union League shows more Iowans are saving compared to the rest of the country, but not saving enough. Nearly 60 percent of Iowans surveyed said they have a savings account designated for emergencies; but 28.9 percent indicated their savings will not cover one month of essential expenses. This is compared to a study of family finances by several government agencies indicating only 38 percent of adults nationwide have established an “emergency fund” to fall back on during tough times.
About half of the survey respondents said they find it difficult to save for emergency purposes. Slightly less than 48 percent of Iowans indicated they have used their savings to purchase a non-emergency item within the last 12 months.
Consumers who do save varied categorically. When asked if they were disciplined or occasional savers, respondents said: very disciplined: 20.3 percent, somewhat disciplined: 40.2 percent, occasionally save: 32.8 percent, and never save: 6.6 percent.
“Living paycheck to paycheck is not ideal, but it is a reality for many consumers,” said Emily Caropreso, Director of Communications & Marketing, Iowa Credit Union League. “We need to better show how establishing a saving regimen, no matter how large or small, is an essential step in circumventing serious financial troubles.”
To establish an emergency fund, the Iowa Credit Union League suggests taking the following five steps:
Identify your essential monthly expenses. Before you can save, you need to know how much to save. Look at your monthly expenses, and categorize them as essential (rent/mortgage, car, food, utilities, credit card minimums, etc.) and non-essential (entertainment, eating out, clothes, cell phone, etc.). Then add up the essentials to determine your monthly income needs.
Multiply your essential expenses amount by six. Most credit union financial experts suggest having at least six months of essential expenses saved up in an emergency fund. While this number may be daunting, it is the best way to avoid difficult financial circumstances such as bankruptcy, loan default, or eviction, when you have a loss in income.
Create a savings plan. Start by identifying how you can realistically amass the amount you need, and within what time frame - whether six months, one year or three years. The goal is to generate a savings habit within your income and budgetary means.
Don’t get frustrated. The slow accumulation of funds in your savings account can be frustrating. If you find yourself losing interest, try incorporating a visual around the house. For instance, keep a jar close by and fill it with loose change and money you save by eating in or avoiding your daily coffee.
Ask for help. Sit down with a financial counselor at your local credit union and ask for help identifying ways you can save. It is likely they have products or services that can help you reach your goal faster.