When we plan for the future, we don’t want to think about the bad stuff. We want to think about the trips we could take or the first step towards homeownership.

The Federal Reserve asked respondents of their annual survey, how they would pay for a $400 emergency. The answer was quite surprising: 47% of respondents said that either they would cover the expense by borrowing or selling something, or they would not be able to come up with the $400 at all.

Really? They couldn’t come up with $400? The solution for most would most likely be: grab the plastic and swipe.

I know if the money is not in my checking account at the moment, that is what I would do. Use my credit card. I do know the importance of paying off the card each month so that it does not ruin your credit score and you don’t owe more money on top of the money you borrowed. The ease of the credit card is something that most people grapple with. It is so convenient but it can be a slippery slope.

It is so easy to fall into debt when you swipe the credit card because all of a sudden, you have 30 purchases and you now have to pay a larger bill than expected.

The real question should be: do you have an emergency fund? If you swipe, would you be able to pay off the $400 at the end of the billing cycle?

When you swipe the credit card, are you balancing out which cards you are using so that you do not carry a large balance on just one card and end up paying more in interest if you cannot pay it off? Have you looked into different credit cards with different benefits that work with you? For example, having a cash back card for everyday purchases and having a credit card for frequent flyer miles if you like to travel for larger purchases.

Would you borrow or sell for the $400? I would probably borrow and then look for a side hustle. Knowing what friends and family are working on for projects and seeing if you could do some work for them to make a little extra side income.

Knowing that on average people cannot pay $400 for an emergency, make sure to keep funding an emergency fund. $10/week To fund a basic emergency savings account will get you started. Not sure where your going to get the funds? Put $10/week into the savings account. You will find $40/mo in that account, and at the end of the year, you will have $480 in your account! You now have that $400 emergency covered.

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  • Wow, 47% is a large number of people! The 10 bucks a week tip is a good one, every penny helps in this case.

    • Very scary to think about that many people who cannot pay for an emergency. Makes me want to start saving right away!

  • I really like the idea of doing $10/week. I think most people can find $10/week pretty easily, perhaps without even noticing it. I’ve been thinking of trying Digit, which is a service that sneakily takes small amounts of money out of your checking account once in a while and puts it into a savings account. That could be an easy way to save without having to even do anything (except sign up for Digit). 😉

    • I LOVE digit 🙂 It is one of my favorite apps. I highly recommend it to anyone. I actually use my digit savings monthly for my investment account so that I can focus on growing my money in addition to just saving it.

  • outsidetheboxmom

    I read that article that referenced this story, too. It surprised me, too. You’ve broken a big goal down into such easy steps. Great advice!

    Thanks for sharing this at Motivation Monday. I’ll be featuring it in my post for this week’s party. Raki

  • The Money Professors

    Great idea by breaking it down into a small $10 chunk. People can relate more to $10 than they can to $400 (apparently)! Plus, this small victory (saving the first $10) can give them the motivation they need to do it again next week, and the next, and so forth.

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