A brand new Bankrate survey shed some light on how Americans tackle unexpected expenses, how Millennials are managing financial independence and which expenses people are prioritizing in their budgets. The survey was conducted in December of 2015 and included 1,000 adult respondents living in the U.S.
According to the survey results, a surprisingly large number of Americans don’t have the financial resources at hand to handle an unexpected $1,000 expense. Bankrate found that 37% of those surveyed would pay for such an expense by dipping into savings. Another 23% of respondents would prefer to cut back on other spending.
However, while 60% of respondents would attempt to budget to handle the expense on their own, 15% of respondents said they would use credit cards to tackle the expense, and another 15% said they would borrow from family or friends.
Nearly one in ten respondents earning less than $30,000 per year said that they do not know how they would possibly pay for an expense that size.
Millennials’ Shifting Approach
Of those surveyed, 37% of Millennials said that they would use savings to pay for an unexpected expense, in-line with other respondents. However, Millennials were less likely to use credit cards (12%) and more likely to borrow from friends and family (21%).
Interestingly, this year’s survey represents a slight shift in thinking for Millennials from just a year ago. The newest numbers indicate that Millennials are becoming more reliant on savings and credit cards and less reliant on friends, family and budgeting.
The Modern Budget
Every year, one of the most popular New Year’s resolutions is to be more responsible with money. Bankrate asked survey respondents how likely they would be to cut spending in 2016 in five different categories: dining out, coffee, cable/satellite TV, alcohol and cellphone plans.
The top source of budget cuts in 2016 was dining out (58%) followed by TV (46%), coffee (41%), cellphones (39%) and alcohol (35%).
Last year, the average monthly phone bill for customers of Verizon, AT&T, Sprint and T-Mobile was between $120 and $148, but younger customers seem unwilling to compromise when it comes to their phones. Overall U.S. smartphone penetration is now nearly two-thirds, but that number is at 85% for Americans age 18-29.
How to Prepare
It seems that few Americans realize how easy it can be to set aside $1,000 per year for unexpected expenses. That $1,000 per year is only about $3 per day, the price of a Starbucks latte. Or if you’d like to take it one month at a time, the $83 per month in savings needed to reach $1,000 per year is slightly less than the difference in cost between the $99 the average person pays for cable TV every month and the $7.99-$11.99 monthly cost of a Netflix subscription.
Responsible budgeting always requires thinking about the future as if it were the present. But by preparing for the unexpected, you can avoid finding yourself stuck in a tough financial situation the next time an unexpected expense pops up.