Economists tell us that a key indicator of financial resilience is the ability to withstand a financial shock. In a recent survey of working Californians entitled “California Dreaming or Struggling,” AARP asked people about the largest unexpected expense they could pay in cash. Their answers were sobering.
Overall, 42 percent say they could not withstand an emergency expense of $5,000 or less. The situation is worse for California’s Gen Xers, 48 percent of whom say they could not afford to pay for such an expense. Moreover, more than one in five (20 percent) say they are unable to afford an emergency expense of $1,000 or less.
Compared to Gen Xers, California’s Boomers say they are more financially resilient, but 41 percent still say they could not absorb an emergency expense of $5,000.
These numbers raise the obvious question: What can I do to become more financially resilient without increasing my income? Fortunately, there are ways you can save with adjustments like these:
Cancel Your Reservations
Dining out is hard on the wallet as well as the waistline. Fire up the backyard grill and skip the drive-through. If you eat at a restaurant or get carryout meals half as often as you usually do for one year, you’ll save money in the four figures. Estimated savings: $1,000 per year
Watch the Thermostat
To save energy, keep your house three degrees colder than usual in the winter and three degrees warmer in the summer. Insulate your water heater, set its thermostat to 120 degrees and install an automatic timer to turn it off when it’s not in use. Estimated savings: $500 per year
Kill the Vampires
Household appliances like TVs and microwaves suck electricity even when off. These vampires account for 5 to 10 percent of total household electricity costs when not in use. Unplug them or attach them to a single power strip that can be flipped off. Estimated savings: $200 per year
Scrub Up
Americans spend about $1,350 each year on cleaning supplies and services. Roll up your sleeves, make your own eco-friendly home-cleaning products and get busy. Pick up a copy of The Naturally Clean Home by Karyn Siegel-Maier at your local library. Estimated savings: $1,000 per year
Save Some Green
The lawn-and-garden-care industry rakes in $80 billion a year from American households, each of which spends about $1,100. Roughly half goes to labor. Do it yourself and get a workout: Yard work burns about 330 calories per hour. Estimated savings: $550 per year
Rethink Your Commute
Walk, ride a bike or use mass transit to get to work: You’ll save thousands, based on AAA estimates of the cost of owning and operating a car and the length of the typical American commute, which is about 32 miles round-trip per workday. Estimated savings: $4,000 per year
Go Cold Turkey
If you smoke one or more packs of cigarettes, buy six or more lottery tickets, drink at least one alcoholic beverage at a bar or restaurant or buy a candy bar, bag of chips and a soda from a vending machine daily, stop at least one such habit. Estimated savings: $2,000 per year
Get Extra Credit
The often overlooked saver’s credit (aka the Credit for Qualified Retirement Savings Contributions) is designed to help lower-income taxpayers save more. Requirements depend on income and filing status, but basically, if you put money into a 401(k), 403(b), IRA or 457 plan, the federal government will hand you a tax credit for as much as 50 percent. For details, see IRS Form 8880. Estimated savings: Up to $1,000 for a single filer, or $2,000 for a household
Following even a few of these tips could make you and your family better prepared to weather an unexpected financial storm.
For more tips and information on budgeting and savings, visit aarp.org/money.
