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Everyone wants to win the lottery, and the latest $1.5 billion Powerball prize even had people in China buying their tickets through online brokers. The dreams are big when it comes to that much cash, but the Wall Street Journal was a little more realistic about them: The chance of winning the biggest prize in United States history was 1 in 292 million, on the Wednesday before the drawing was set to happen.
Practically everyone has read the stories about what’s more likely to happen – being struck by lightning, a fatal scorpion sting – but there’s something else that is a much safer bet than a Powerball win, and that’s the likelihood that you might not have the funds to cover an emergency expense during the year.
A December 2015 survey by Bankrate.com found only 37 percent of Americans have the cash on hand, in savings, to cover a $500 surprise. These aren’t catastrophic expenses, and they’re the stuff our real lives are made of when the car breaks down, the hot water heater quits, or there’s an unexpected and unpleasant trip to the dentist. That percentage hasn’t moved much since 2014 – it was 38 percent then – and it means that Americans are still struggling to put savings into their emergency expense accounts.
If you’re looking to do better in 2016, one of the best ways to structure savings into your life is to pay yourself first. Setting aside some cash for the inconvenient or the inevitable is a lot easier when you make that commitment up front, but it’s obviously easier for people with higher incomes than those who live closer to the margins. The thing is, according to a November Pew Research study, the odds of that financial hit happening amounts to about 6 in 10 households. In other words, it’s the majority of Americans who experience a financial “shock” in any given year, and a lot easier for people with savings.
The Bankrate survey, which included 1,000 Americans, also asked people how they’d pay for emergency expenses in the absence of savings. One bright spot that analysts noted was that 23 percent would cut spending to cover those costs, which suggests that they have some discretionary spending wiggle room in their lives. That number was even higher among millennials, who answered in almost equal numbers that they’d cut back their spending (31 percent) or have the option to dip into their savings (33 percent).
Overall, just 15 percent said they’d use a credit card, while about the same number would borrow from family members or friends. But for people making less than $30,000 a year, almost 10 percent said they had no idea how they’d manage to pay for the unexpected – even when it was relatively small in size.
One option that people might consider is a personal loan. While many banks won’t offer or approve a loan that’s just $500 or $1,000 for a short term, there are lenders like Moneylend.net that create loan products for just this kind of situation. Choosing a reputable lender when faced with the unexpected is a better option than a payday loan or predatory lender, and makes it possible to keep moving forward.
Finally, the Bankrate survey notes that it’s a learning experience to meet the challenge of a surprise plumbing problem or emergency trip to the vet. One thing you can do in 2016, regardless of income level or your savings, is to start the year off right by actually thinking about what could go wrong – and start stashing a little cash to cover it. It’s a strategy with way better odds than winning the Powerball!