80% of Americans Aren't Confident They Could Miss 3 Paychecks

Having an emergency fund is important to cover you in case of missed paychecks -- but many Americans don't have one. 

What would happen if you got sick and couldn't work temporarily, or if you lost your job and couldn't find another one right away?

If you're like most Americans, this could lead to serious financial disaster -- including missed bills, damaged credit, or even life-changing consequences such as foreclosure of your home, eviction, or repossession of your vehicle. 

A stressed young couple looking through their bills.

Image source: Getty Images

Why are Americans at such great risk if they miss out on a little bit of income? Unfortunately, it's because the majority of Americans don't have nearly enough money saved, as new research by The Ascent into financial planning reveals. 

Most Americans are lacking appropriate emergency savings

Financial experts recommend that you have an emergency fund with enough money in it to cover three to six months of living expenses. This emergency fund should be accessible in a high-yield savings account or other account that makes it easy to take out the money if you need it.

Having this emergency fund is important to cover unexpected costs without reaching for the credit cards -- and also to protect you in case you have to go without income for a period of time. That way you won't have to forgo paying bills or end up deeply indebted as you borrow to cover basic costs of living. 

Unfortunately, The Ascent's recent research revealed that most Americans aren't prepared to cover costs in the event of an income interruption. In fact:

  • 7% of Americans could miss no paychecks before failing to meet their financial obligations
  • 11% of Americans could miss only one paycheck before they wouldn't be able to fulfill all their financial commitments
  • 9% could miss just two paychecks
  • 3% could miss three paychecks and 49% are not sure

Altogether, this means 30% of Americans could be in serious financial trouble as soon as they went without getting paid for three checks -- even more if we include those who are not sure. Depending on whether you're paid weekly, every other week, or monthly, this means that within three months or less, close to a third of Americans would be in serious financial trouble if their income stopped. 

Obviously, these Americans who couldn't miss a few checks are lacking the requisite emergency savings needed to see them through. 

What to do if you're not prepared for an income interruption

If you're one of the millions of Americans who'd start missing financial obligations after missing a paycheck -- or two or three -- it's best to take action before a job loss, illness, or other unexpected event occurs. 

You should start working on aggressively saving for emergencies until you have the emergency fund necessary to provide financial stability if things go wrong. It can seem daunting to save three to six months of expenses, so break this down into smaller, more achievable goals. Figure out how much you'd need to save each month to meet your emergency fund goal within six months or a year. Then, look for ways to cut your budget to hit your target.

You may even want to consider a side gig to help you boost your emergency savings -- especially if there's reason to suspect you may miss paychecks, such as an unstable job, ill health, or pressing family obligations on the horizon. You can use the money from your side gig to shore up your emergency fund more quickly. And as a bonus if you lose your job, your side gig could help keep you stay afloat until you find a new one. 

Don't leave yourself unprepared for a loss of income

Income interruptions can happen for a whole host of reasons, from a layoff or termination to a company restructuring to a family problem or health issue. It's imperative you're prepared because you don't want your financial life to be sent into turmoil. Get serious today about building up an emergency fund in case you need to miss more than three paychecks. You'll soon have the peace of mind of knowing that you won't quickly descend into financial disaster if something goes wrong.

Savings account rates are skyrocketing -- Earn 23x your bank

Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. Our picks of the best online savings accounts can earn you more than 25x the national average savings account rate. Click here to uncover the best-in-class picks that landed a spot on our shortlist of the best savings accounts for 2019.

The Motley Fool owns and recommends MasterCard and Visa, and recommends American Express. We’re firm believers in the Golden Rule. If we wouldn’t recommend an offer to a close family member, we wouldn’t recommend it on The Ascent either. Our number one goal is helping people find the best offers to improve their finances. That is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Latest Markets Videos

    The Motley Fool

    Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

    Learn More