By coinnews 
00:00 Brad Smith
A new study by Investopedia finds that the average American family should have $35,000 in their emergency fund. If that sounds like a lot, you’re right. According to the Census Bureau data, it’s only roughly 40% of Americans annual income here. Joining me now in studio, we’ve got to discuss this study and how Americans can save better. Caleb Silver, Investopedia editor in chief. Caleb, good to see you here. I mean how, how did we arrive at this number and and what are the costs that Americans should be aware of?
00:41 Caleb Silver
Yeah, and we’re talking about households here. We’re not talking about individuals. We’re talking about my goodness, right? About the needs, not the wants, right? The essentials. Medical care, cars, uh health uh housing and utilities, food, all the things you’re going to have to pay for if you suddenly lost your income. Not talking about the vacation, not talking about uh, you know, the discretionary theater, uh we’re talking about what you actually have to pay for. If you’re raising a family and you need to get through those costs, especially those medical care costs. Those average add up to around $11 and .6,000. So we’re talking about a fair amount of money whether you’re covered with Cobra. If you lose your job, you have to get additional health care, you have to get additional health care riders. But also most households have more than two cars. So we’re talking about putting one in the garage and servicing the other and getting gas, things like that and then housing and utilities, you know those costs keep rising every single month. So everybody’s numbers different. But we took the median household and we took the actual cost of things based on the BLS, based on the consumer price index, based on Kaiser Permanente’s family study and said this is what you actually need if you have to make it six months and people should plan for that.
02:38 Brad Smith
How’s that compare to the average amount that households have saved right now?
02:43 Caleb Silver
Yeah, average households only have savings of around eight and eight and a half thousand dollars. And we adjusted that for inflation too. The Census Bureau ran that a couple of years ago, but still, people aren’t saving enough because everything costs too much or they’re spending too much. So we’re talking about putting that money away and putting it into a place where it can grow over time, like a high yield savings account, but you that you can access immediately. It has to be liquid, you have to be able to access it if you have that emergency and you can’t have it tied up in a CD, you can’t have it tied up in the stock market. And it is a lot of money, Brad, but when you think about what you actually have to pay for, this is kind of what it comes down to.
03:31 Brad Smith
We often hear about uh especially with inflation in mind, the cost of living type of adjustment that your emergency fund also needs to take into consideration. You know, how is inflation and price changes affecting some of these numbers?
03:49 Caleb Silver
Yeah, we took the average rate of inflation, which is somewhere between two and a half and 3%. We got a nice inflation reading today. But we took that average rate just because things continue to cost more over time. But when you take something like health care where it’s actually outpaced inflation, housing costs as well, we had to account for those too. But when you’re thinking about what you would can’t get away from paying for if you want to sustain the household, these are the things you have to be thinking about. Now if you’re single, it’s going to cost you a lot less. If you have several children in the family, you’re taking care of uh you know, older family members, it’s going to cost you more. It’s all about determining what it costs to be you, the absolute essential cost of what it costs to run a household and making sure you’re accounting for that over at least three months, but hopefully six. That’s where that six-month $35,000 number comes in.
04:54 Brad Smith
If people want to calculate their own six-month expenses for the household, what, what are those buckets that they should be tracking in to really give them that holistic figure?
05:06 Caleb Silver
Yeah, medical care and especially insurance coverage, right? What are you, what are you going to have to pay? What might you have to pay out of pocket for, God forbid if something should happen? But automobiles also a big one. You’re thinking about maybe if you have two, putting one in the garage again, doing some car pooling, but still you have to service that car. You got to pay insurance on that car. You got to fill it with gas. You got to think about that and then your housing and utilities. You can’t get away from paying the rent. You got to keep you know, yourself in the house, all of those things uh that go into that. So it’s really determining and this is the quintessential question in wealth planning is how much does it cost to be you? And how much does it cost to be you essentially? You want to make sure you have that number times six months.
06:01 Brad Smith
Caleb, great to see you here in studio with us. Thanks for taking the time.
06:05 Caleb Silver
Thank you.