Could you afford a $5,000 emergency expense?
More than half of Australian adults wouldn't be able to pay for a $5,000 unexpected emergency expense.
New research by Finder reveals some worrying statistics about our ability, or lack thereof, to pay for unexpected expenses with our own money. Through a survey of more than 2,000 Australian adults, it was found that more than half (57%) of us wouldn't have enough cash in our savings to cover a $5,000 expense. That's more than 11 million Australians without enough money in savings to cover a $5,000 emergency bill.
Perhaps unsurprisingly, it's the younger generation who have the least cash stashed away for a rainy day. Of the Australians aged between 24 to 38, 61% say they don't have enough cash readily available in their savings to cover an expense worth $5,000. In comparison, more than half of Australians aged over 59 say they would be able to cover that kind of expense with their savings.
A $5,000 expense may seem unlikely, but it's easier to rack up a $5,000 bill than you might think. For example, you could find yourself in a car accident where you're at fault and, if you don't have car insurance, you could be hit with a bill of $5,000 or even more to repair the other persons car (especially if it's a fancy Mercedes!). Or, you might find yourself in need of some specialised medical treatments which, unless covered by health insurance or Medicare, could easily add up to $5,000 or more.
When asked how they'd scrape together the money to cover a $5,000 emergency expense, a quarter of Australians would ask their friends or family to help them cover the cost. Following this, 13% would opt for a personal loan, 12% would pay for it on their credit card and 3% would take out a pay day loan. However, this strategy can lead to even more problems as consumers will need to pay back the money borrowed as well as interest payments. If you were unlucky enough to be hit with yet another unplanned expense, this strategy could quickly spiral into a level of debt that's not manageable.
If you're trying to build up your rainy day savings, start by switching to a bonus savings account that pays extra interest each month you meet the account conditions.