An emergency fund can help keep you afloat when you face a loss of income or a large unexpected expense. Having an emergency fund is essential so that you’re not forced to take on debt when these bumps in the road arise — yet many women don’t have one. A recent survey conducted by GOBankingRates found that 57% of women do not have money saved up for an emergency, while only 44% of men reported not having an emergency fund.
In today’s “Financially Savvy Female” column, we’re chatting with Kristen Carlisle, VP, general manager at Betterment, about why women are lacking emergency savings, why this is a problem and what women can do to build up an emergency fund.
Fifty-seven percent of men have an emergency fund versus only 43% of women. What are some possible reasons for this difference?
There’s a huge schism between the way men and women save. A lot of conversation around this has been around the fact that women typically earn less than men — they earned around 82% of what their male counterparts earned in 2019, [according to] a 2021 Census report. We’ve also just seen that behaviorally, women tend to invest less in ancillary accounts compared to male counterparts. Women actually do tend to invest in retirement savings, although not at the same clip as men, and the theories behind that are also the theories around [women’s] overall approach toward their finances — [they tend to be] way more conservative than men. They’ll go for some of the more traditional routes for saving vehicles, like a 401(k) when accessible, but when it comes to ancillary accounts, like an emergency saving fund, they tend to be far less focused on it. So I think there are two factors — the compensation disparity that’s happening as well as the overall approach towards financial stability.
The other thing that can’t go without being stated is we saw a lot of women leave the workforce [during] the pandemic, so being able to put aside money for emergency savings when you’re not receiving an income is really difficult to achieve.
Why is it vital for every woman to have an emergency fund?
Everyone should have an emergency fund no matter what their situation is, and really that’s because life is unexpected. Things happen that can cause financial disruption — pandemic or no pandemic — if you are a homeowner and you have issues with your home, if you want to potentially invest in your home, if you have an unexpected medical expense that comes up. Preparing for these unexpected events in life is what’s really critical.
The most common [financial disruption] is unemployment, and that goes for expected and unexpected unemployment. You want to give yourself the reprieve of knowing that you’ll have the flexibility if you choose to step away from your employment or you find yourself unemployed in the future. We see what’s been happening, that by and large women are leaving the workforce at a clip greater than men. Women are leaving the workforce in droves to take care of their families, and have to have some sort of financial support system behind them in order to have that flexibility. Having enough savings to cover yourself for three to six months of your essential costs gives you that flexibility and that freedom.
What are some steps for women who don’t have an emergency fund to build one up?
1. Know how much you need to save. My biggest piece of feedback is just to spend a little bit of time looking at how you’ve been spending. That gives you insight into how to set a goal for yourself based on your expenses. That three to six months is necessary living expenses — we’re not talking about any subscriptions or anything along those lines. It’s really the baseline to make you feel comfortable. Get to know that number. That’s the first thing. Understand what that is before you start to feel overwhelmed by it.
2. Start small. It can still feel slightly overwhelming if you’re looking at that number and you’re thinking, ‘Well, there’s no way that I can save that.’ It’s really easy to just walk away and not save anything. What I always say is, start with something — the smallest contribution you can possibly make. Don’t stress about having to hit that number in a really short period of time and instead just focus on, OK, if I take a look at my budget and I’m spending a certain amount on coffee and a certain amount on subscriptions, could I potentially take from that budget and put aside a little bit to start saving towards an emergency savings fund? Think about those as tactics to get you to your end objective. In many cases, you don’t even need to sacrifice the way you live your life today if you set aside $10, $15, $20 a week.
3. Automate contributions. I would also encourage people to take some of the guesswork out of it — automate it. Automate your savings by siphoning off a little bit every month, every week from your existing accounts — whatever you can realistically afford. I would also take a look at accounts that help you to grow that over time. Here at Betterment, we have an auto-investment solution so that your money is growing while you’re saving. That helps you achieve your goal and make it feel less daunting when you’re looking down the barrel at a large number.
4. Increase contributions over time. When you can, start to increase [your savings contributions] slightly over time. Small percentages go a long way. If you get a raise, if you get a bonus, put it into a savings vehicle like an emergency savings account.
5. Continue saving as much as you can. Don’t stop. When you hit three months, when you hit six months, keep going. This is money set aside for you to feel comfortable and safe and secure no matter what life throws at you, and for you to use so that you don’t have to dip into funds that are meant for other things, like education or retirement, because those come with tax implications and they’re not really meant for today or the short term. Just keep going as best you can, and don’t get daunted because every little bit counts. Every dollar you put aside, that counts, every dollar you can save, it helps you build some stability for yourself.
GOBankingRates wants to empower women to take control of their finances. According to the latest stats, women hold $72 billion in private wealth — but fewer women than men consider themselves to be in “good” or “excellent” financial shape. Women are less likely to be investing and are more likely to have debt, and women are still being paid less than men overall. Our “Financially Savvy Female” column will explore the reasons behind these inequities and provide solutions to change them. We believe financial equality begins with financial literacy, so we’re providing tools and tips for women, by women to take control of their money and help them live a richer life.
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Methodology: GOBankingRates surveyed 1,005 Americans ages 18 and older from across the country between Jan. 16 and 18, 2023, asking 20 different questions: (1) Do you currently have any form of an emergency fund?; (2) How much do you currently have put away for an emergency fund?; (3) If you faced an emergency (medical, housing, etc.) how would you have to pay for it?; (4) How much do you currently have saved for retirement?; (5) Do you have any of the following debt? (Select all that apply); (6) How much debt (student loans, medical, auto/personal loan, credit card, etc.) do you currently have? (NOT including mortgage); (7) If you have a significant other, how much do you argue about money concerns?; (8) Which money topics do you discuss with your children? (Select all that apply); (9) How often do you discuss personal finance issues with your family and/or friends?; (10) What are the chances, in an average month, of you and your family running out of money before you are paid next?; (11) What worries you most when it comes to your personal finances?; (12) Compared to pre-COVID (before March 2020) are you more or less confident in your personal finances?; (13) If you received an unexpected bonus of $5,000, what’s the first thing you would do with it?; (14) If you won the lottery ($100 million), which of the following would you do with the winnings? (Select all that apply); (15) Would you rather ask a family or friend to borrow money, or max out a credit card?; (16) What would you like to learn more about in order to improve your personal finances?; (17) Do you consider yourself a spender or a saver?; (18) Which categories do you believe you overspend on? (Select all that apply); (19) How much do you spend on self-care monthly?; and (20) What is your top financial priority? GOBankingRates used PureSpectrum’s survey platform to conduct the poll.