As the coronavirus pandemic continues to assault the economy, nearly two-thirds (65%) of Americans fear not having enough money for the future, a new survey shows.
Conducted by Jayhawk Media, a media company that produces content about personal finance and other subjects and publishes tips about money management via the Monday’s Money Medicine newsletter, the survey found that the average American’s emergency fund totals just $2,299.
“The finding about the fear of not having enough money for the future and other results of this survey indicate that now is as good a time as ever for Americans to ensure they’re financially prepared for the future,” says personal finance expert John Egan, owner of Jayhawk Media. “Future-proofing your finances is the one of the best gifts you can give yourself.”
Other survey findings that support the need to future-proof your finances include:
- 33% of Americans would have to borrow money (like using a credit card) to cover a $1,000 emergency expense.
- 47% of Americans don’t have a budget of any kind.
- Running up too much credit card debt is cited as the No. 1 money mistake made by Americans (17%), followed by failing to save enough money for retirement (14%), not saving enough money for emergencies (13%), and living paycheck to paycheck and not creating a budget (tied at 11%). By the way, 17% of those surveyed said they’ve never made any money mistakes.
- 26% of Americans would rather visit the dentist than create a budget.
Egan provides the following four tips for future-proofing your finances.
1. Set up an emergency fund
Start a fund that’ll help cover everyday expenses in case of an emergency. Examples include a job loss, unexpected car repairs or surprise medical bills. As a rule of thumb, an emergency fund should contain enough money to pay three to six months’ worth of living expenses.
“An emergency fund that would cover one or two months’ worth of living expenses is far better than no emergency fund at all,” Egan says. “At the other end of the spectrum, an emergency fund that would cover at least nine months’ of emergency expenses would be ideal.”
Keep in mind that an emergency fund is not meant to pay for a getaway to Greece or a Queer Eye-worthy wardrobe makeover. This fund should be separate from your regular checking and savings accounts — perhaps even at a different bank or credit union.
2. Create a budget
For nearly one-fourth of Americans, setting up a budget feels more painful than getting your teeth pulled, the survey shows. However, not having a budget could cause something worse than a toothache.
Creating a budget need not be complicated. It might be as simple as tracking your monthly income and expenses in a special notebook. Then, you can figure out how those numbers should guide your monthly spending and savings.
“To step up your budget game, you can download a budgeting app like Mint, YNAB (You Need a Budget), PocketGuard or Goodbudget. Or you can use any number of budget spreadsheet templates that are available online,” Egan says. “No matter which budgeting method you choose, it’s important to closely monitor your monthly income and expenses to help future-proof your finances. Ultimately, your goal is to save more than you spend.”
3. Freeze your credit
If you’re constantly tempted to whip out a credit card to purchase a new pair of shoes that’ll join the three dozen other pairs in your closet, you can put your credit cards on ice.
To resist the urge to put purchases on your credit cards, stash all but one of those cards in the freezer. Just be sure to put those cards in a freezer-safe bag. The card that you keep out of the freezer should be set aside for emergencies or major purchases.
Another way to cut back on credit card spending: Freeze your credit report. When you authorize a freeze through the three credit bureaus (Equifax, Experian and TransUnion), a credit card issuer or any other lender can’t access your credit report in order to approve a credit application.
“When you do decide to apply for credit, be sure to unfreeze your credit reports,” Egan says.
4. Check your credit
One of the keys to future-proofing your finances involves keeping on top of your credit. This involves regularly looking at your credit reports and credit scores.
In response to the coronavirus pandemic, Equifax, Experian and TransUnion are providing free weekly access to your credit reports through April 2021. Normally, you can obtain a free credit report from each of the credit bureaus only once a year.
Aside from combing through your credit reports to spot errors that might be hurting your credit scores, you should review your credit scores on a regular basis. That’s especially important if you’re getting ready to apply for credit. You’ve actually got many credit scores — probably dozens and dozens of them, not just one.
“When you check your credit scores, you’re able to gauge your creditworthiness,” Egan says. “If your credit scores are low, you can bring them up by reducing or paying off credit card balances. This helps cut your overall credit usage, which is one of the major factors that goes into calculating your credit scores. With higher credit scores, you might qualify for more favorable interest rates, paving the way to shrink how much interest you’ll pay over time.”
The survey was conducted in partnership with SoapBoxSample, a Los-Angeles based insights firm. It was fielded online July 27-Aug. 3, 2020, among a nationally representative sample of 800 U.S adults age 18 and older. The data was weighted to ensure results are projectable to appropriate U.S. populations.