A significant number of young adults today find themselves grappling with financial stress, but experts suggest there’s a straightforward safety net available to alleviate some of that burden. A recent survey by Intuit highlights that approximately 61% of Americans aged 18 to 35 report feeling financially stressed. Alarmingly, around 21% say their stress has intensified over the last year.
Key stress factors include the high cost of living, job uncertainty, and rising housing expenses. For those who identify with financial stress, unexpected emergencies like medical bills, car repairs, and home maintenance contribute to their anxiety, with 32% finding such incidents particularly stressful. The survey engaged 2,000 young adults in December to gather these insights.
### Young Adults and the Absence of Financial Contingency Plans
The absence of a clear financial plan is partly to blame, with about 32% of respondents admitting they lack a strategy for managing unexpected financial setbacks, as found in the Intuit survey. Nearly half (45%) view unexpected expenses as a challenge, while 29% struggle with saving money.
Bankrate’s latest report paints a similar picture, revealing that older generations are more inclined to handle an unforeseen $1,000 expense from their savings. Approximately 59% of baby boomers, aged 61 to 79, can do so, compared to 42% of Gen Xers, aged 45 to 60. Only 32% of millennials and 28% of Gen Z adults, spanning ages 18 to 44, have money readily available to cover such expenses. This survey reached 1,039 people aged 18 and older in early December.
According to Mark Hamrick, a senior economic analyst at Bankrate, “The youngest generations are those at the beginning of their financial journey.”
### Facing Financial Emergencies Without Sufficient Savings
We’re all susceptible to unexpected financial emergencies, whether it’s losing your house keys or, worse, losing your job. Experts suggest preparing by setting aside savings and using credit wisely. Clifford Cornell, a certified financial planner, emphasizes having cash reserves as an integral part of financial planning.
Mark Hamrick notes that an emergency fund acts like a bulletproof vest—it doesn’t cover all scenarios but provides a strong start. For Gen Zers, there’s considerable room for improvement, as about 80% worry about not having enough funds to sustain living expenses if they were to lose their main job. This concern is shared by 72% of millennials and Gen Xers, and 58% of baby boomers agree.
“We’re setting ourselves up for failure without adequate emergency funds,” Hamrick warns.
### Steps to Build Your Emergency Fund
Start small—whether it’s $10, $50, or $150 monthly. The essential part is to cultivate a savings habit as soon as possible. Here’s where to kick off, according to financial advisors:
#### 1. Open a High-Yield Savings Account
Your emergency savings should be in an account where you can access funds quickly without penalties. A high-yield savings account provides a beneficial option. Although interest rates have dipped from peak levels, top accounts offer around 4.31% annual yields, far outpacing the 0.51% yield typical of standard savings accounts.
For every $1,000 saved in a high-yield account, you could earn about $40 annually—substantial compared to traditional accounts. Ensure the account is FDIC-insured to safeguard your deposits should the financial institution encounter problems.
#### 2. Determine Your Monthly Savings
Decide how much you can save based on your earnings versus your expenditures. The 50-30-20 rule is a helpful guideline: allocate 50% of your income to essentials, 30% to discretionary spending, and 20% to savings and investments. While saving 20% might be challenging for those just beginning their careers, even small amounts can add up over time.
#### 3. Set Achievable Goals
Begin with the target of saving three months’ worth of living expenses. Once you reach this milestone, aim for three to six months, or even more, depending on your circumstances. A larger cushion can be especially beneficial for those with fluctuating incomes.
Hitting the goal of three months’ expenses can be time-consuming, and while it may seem daunting, even having a few hundred dollars set aside can provide a buffer. The Federal Reserve considers gauging the ability to cover a $400 emergency cost, emphasizing that even modest savings can be a lifesaver, reducing the need to borrow.
