A new study has found that the most significant factor in boosting financial security isn’t a million-dollar nest egg or a high salary—it’s simply having $2,000 in emergency savings.
Vanguard, an investment company, surveyed over 12,000 investors and found that having at least $2,000 set aside for emergencies increased financial security more than income or assets. The report measured financial security as the ability to cover living expenses, meet obligations, ease worries about the future, and make personal choices.
Emergency savings of $2,000 improved financial security by 21%, more than the 18% boost from having $1 million in assets or the 12% boost from an annual income of $500,000.
The report explains, “This study shows that having even a small safety net for unexpected expenses is more important than amassing large sums of money.”
Because the average cost of an unexpected emergency is about $2,000, having this amount on hand can ease worries about sudden hospital bills or car repairs.
Paulo Costa, a behavioral economist at Vanguard, told CBS MoneyWatch, “The key message of this study is the importance of an emergency fund. Just having $2,000 ready can bring a significant improvement in financial well-being.” He added, “Unlike retirement savings, which are penalized for early withdrawal, emergency savings in a bank account can be used immediately when needed, making the $2,000 feel even more valuable.”
The study also found that people with emergency funds spent two fewer hours per week worrying about money than those without.
However, experts caution that $2,000 can still feel like a heavy burden for people living in high-cost areas, those with low incomes, or those dealing with debt. According to the Federal Reserve, about 37% of consumers last year said they would struggle to cover even a $400 emergency expense.
To help, experts recommend starting small. “Even saving $10 a week can help,” they said. “Set up an automatic transfer from your paycheck to build up your emergency fund gradually.”
BY HOONSIK WOO [woo.hoonsik@koreadaily.com]
