Even highly skilled Americans with solid incomes can easily find themselves living from paycheck to paycheck, or worse: slipping over time into debt that seems insurmountable, causing them to put off, perhaps indefinitely, the dream of a secure financial future. A single job layoff or health crisis can trigger this situation. This is a crisis.

In the recent Atlantic article, The Secret Shame of Middle Class Americans, author Neal Gabler described a survey by the Federal Reserve Board that revealed one remarkable fact:

When asked how they would pay for a $400 emergency, 47% of respondents said that either they would cover the expense by borrowing or selling something, or they would not be able to come up with the $400 at all.

As the CEO of an online financial planning service, I know only too well how close many of us are cutting it without a cushion of savings. Even highly skilled Americans with solid incomes can easily find themselves living from paycheck to paycheck, or worse: slipping over time into debt that seems insurmountable, causing them to put off, perhaps indefinitely, the dream of a secure financial future. A single job layoff or health crisis can trigger this situation.

This is a crisis. And, too many of us compound matters through denial, ignoring the urgency of the problem, maintaining a stubborn silence borne of shame. As Neal Gabler reports, “You are more likely to hear from your buddy that he is on Viagra than that he has credit card problems.” If, as a culture, we in the U.S. feel that financial insecurity is more shameful than sexual impotence, it’s no wonder that half of our population is not only in precarious financial straits but also unable to get the help they need.

It’s time to break the silence and start fixing this problem. First, let’s acknowledge some of the reasons the problem exists.

  • Saving six months’ worth of living expenses as an initial cushion feels like a big challenge if your income is not large or your career is in flux.
  • We imagine that catastrophic events happen to other people – never to us. As much as 18-24 months of expenses would be needed to cover that.
  • We mistakenly count on friends and family to always be able to help in case of a sudden financial emergency.

These are easy rationalizations to fall into, but the fact is, unexpected expenses happen all the time – and no one should ever be without an emergency fund. Without a cushion of savings, whenever something goes wrong (the loss of a job, a family member needing surgery), it is too tempting to fall into debt, to drain your long-term savings account, or to borrow from your 401(k). When you have a cushion of savings, however, unexpected expenses do not have to derail you. Instead, you quietly use your cushion and stay on track, then rebuild you cushion for next time.

Prevention, not cure, is the key to avoiding the money missteps that follow when you don’t have a cushion against the unexpected. When you understand the importance of an emergency fund, it is easier to sacrifice luxuries like expensive dinners out or a vacation while you build your savings. Ready to start building your emergency fund? Increase your monthly savings and deposit as much of that as possible into an easily accessible savings account until it reaches about six (6) months’ worth of expenses. After that, build up another 18-24 months of cushion to weather more serious emergencies.

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