Do you have a salaried job? Excellent! Statistically, that doesn't exempt you from the unpleasant realities of relying too much on credit day-to-day. Living well beyond one's means is now the norm: the average American spends $1.33 for every $1 earned. More than half of Americans also don't have any savings or emergency funds at all.

I'll pause to let those insane numbers sink in.

So — where the heck do we spend literally all of our money, plus 30% more cash that we don't even have yet? A survey from GoBankingRates revealed that two of the top sources of debt for Americans are credit cards and medical bills. While it's true that not all credit card purchases are designer bags or the newest gadgets, the survey found that more than half of the amounts charged on regular credit card bills were spent on these luxuries.

Not only is this a dangerous show of overspending, but when (not if!) an emergency strikes, there won't be enough cash in the bank to cover the bill. In this situation, the only way to pay for the emergency is with more credit, establishing a vicious cycle of debt.

Facing reality and reigning in your shopping habits might be upsetting. But the truth is there are so many reasons why having an emergency fund beats the pants off buying a ton of nice things you don’t actually need...and why it's an absolute necessity.

Here's the rundown:

What exactly is an emergency fund?

City view through a window on a rainy day
August_0802/Shutterstock
Saving for a rainy day is a lesson taught to kids as young as five. Yet, in the real world, saving money isn't always easy.

Saving for a rainy day is a lesson taught to kids as young as five. Yet, in the real world, saving money isn't always easy. Statistics show that about 26% of adults do not have any money tucked away for emergencies, while more than 35% have not yet started a retirement savings account.

Also, while employed individuals within aged 30 - 49 are able to save on average about $200 a month as part of their retirement funds, older people (ages 50 – 59) can only save about $78 in a month. An emergency fund is another matter altogether. In a survey by CreditDonkey, it was found that only about 41% of adults in the U.S. have at least $500 in their savings accounts for emergencies and only 17% had an emergency fund that could last for three to five months.

Yet both emergency funds and retirement savings accounts are super important. An emergency fund is a stash of money saved for unexpected circumstances like losing a job, or dealing with an unexpected emergency or unplanned home repairs. Unlike a retirement fund, it's not necessary to set aside a huge amount for emergency savings—nor is there a set amount for everyone. The amount you should have available depends on how many dependents you have, whether you own or rent your home (you might not have to pay for repairs if you're renting), and what kind of insurance coverage you and your family members have.

Since the money is set aside for emergencies, which hopefully don't happen often and are not considered a regular expense, the most important thing is to put aside some money regularly. You have some time to build up your emergency fund, so you might be able to put aside fairly small amounts of money regularly and let it add up over time.

What an emergency fund can do for you

Emergency fund concept
Image by Anastasia Yevtushenko for MoneyWise © 2576250 Ontario Inc. 2017
How much do you pay when your car breaks down? Do you pay with cash or card?

Consider the following:

How much do you pay when your car breaks down? Do you pay with cash or card? The average car repair cost is $500 and 1 out of 3 car owners in the U.S. are unable to pay for such unexpected car repairs.

How much have you spent for the year in repairing sudden problems with plumbing or electrical wiring in your home? Data from GoBanking Rates shows that a household spends about $168 every month just for general repairs and maintenance. That may not seem like much, but that adds up to about $2,000 over the year. For families with no ready cash for such repairs, this could mean an added $2,000 in debt.

How much do you spend on a replacement phone when you drop yours into the toilet? An average smartphone costs about $500 at a retail store. Granted, you can use your credit card to buy a new one, but this also means an unbudgeted $500 on your bill next month. If you can't pay it off immediately, the bank starts charging you interest on your bill.

The fact that emergencies are unexpected also adds to the cost. Take for example the case of a family member living on the opposite side of the country getting sick. Because of the urgency of the situation, you might be forced to take a last-minute expensive flight to see them.

You could go in for your annual physical exam only to find out that some of the medicine that the doctor has ordered is not covered by your insurance.

This is where an emergency fund comes in. It's your quick, hassle-free answer to moments like these. It's a safeguard against having to forego paying for important expenses or making bad financial decisions.

Take the car repair or the broken smartphone as examples. If you had money tucked away for these emergencies, you wouldn't have to use your credit card, which could prove to be costly in the long term thanks to interest rates and penalty fees.

Peace of mind and financial stability come from knowing that if anything should happen, you don't have to worry about paying for it. The only thing that's worse than not having the money is the killer stress that comes with it.

How much do you need to save for an emergency fund?

Jar of english money with rainy day background
Jeanette Teare/Shutterstock
While there is no set amount, financial experts advise having at least 3 to 6 months' worth of monthly expenses tucked away for emergencies

While there is no set amount, financial experts advise having at least 3 to 6 months' worth of monthly expenses tucked away for emergencies. The exact number depends on your own circumstances. If you lose your job, this amount of money will allow you to cover your regular monthly bills for the next five to six months while you look for a job.

Forbes has a few guidelines for how much you should put aside. If you're single with no kids, are a renter, and could potentially move back to your parents' house if the worst happened, then putting aside three months' worth of pay might be enough for your emergency fund. Once you've made this goal, you can start putting some money aside for long term savings or investments.

If you have a house, are married and have kids, and have two paychecks coming in, then you should probably put away 6 months' worth of pay from the highest earner in the family. The same guideline applies if you're married, no kids, but have a mortgage to pay. Or if you’re married and have a toddler and only one income coming in. Or if you're single and have a condo.

If this is still too confusing, then consider using an emergency fund calculator.

Shop less and start saving for an emergency fund!

An article from The Atlantic explains that the average American household spends about 33% of its income on housing, 13% on food, 6% on healthcare, 5% on entertainment, and 4% on apparel and clothing — and a whopping 39% on something called "other." This "other" category covers a whole range of luxury and necessity items, including cars, electronic gadgets, television, mobile data, home Internet services, travel, etc.

While some people might argue that overspending can't be fully blamed for why households are in debt or why people don’t have anything tucked away for emergencies and retirement — it's certain that overspending is at least partly to blame.

While it's impossible to always resist the lure of buying fun and beautiful things, how do we make saving for an emergency possible? How do we handle these unexpected expenses that grab us by the wallet and won’t let go? Here are some pointers and tips.

An ounce of prevention

When your car starts making funny noises, this can be a warning sign and reminder to see the car mechanic. Vet bills for pets are also pricey, so if your pet starts acting out of character, visit the vet before something small turns into a medical emergency. Take the same tack with your own health: try to form fairly healthy eating habits and get regular, moderate exercise in order to prevent expensive and painful conditions like diabetes and heart disease down the road. Good maintenance of your own health, your kids and pets' health, your home, and your car can all prevent bad situations from occurring or worsening to the point of needing a costly solution.

Always consider temporary fixes

Some emergencies are urgent and need an immediate solution, like a broken window at the height of winter or an urgent health condition that needs care. But a cracked cellphone screen does not need an immediate replacing of the phone, and a broken microwave's functions can be temporarily replaced by the stove or oven. Before throwing something out or buying a replacement, always consider whether there is a cheap, temporary solution to the emergency and if the repair can wait until next month. If you can delay additional spending until you have more money in the bank or more room on your credit card, you can avoid having to borrow cash or spend more credit than you can pay off at the end of the month.

Remember the 1% rule

You don't have to save a huge amount of money for an emergency fund; almost any amount will do. But some major emergencies may cost more, like healthcare costs, housing, and vehicle repairs. Experts suggest budgeting at least 1% of the total yearly cost of these items as part of emergency savings. If housing maintenance costs you about $2,000 a year, then tucking away $20 every month can go a long way to paying for a related emergency.

Identify items you can cut down on

Saving some extra cash for your rainy day fund doesn't have to mean short-changing yourself on the basics and completely doing away with small splurges. When little rewards like catching a movie once in a while are taken away, the tendency to splurge on bigger luxuries goes up significantly.

Instead, saving consciously and actively for an emergency fund can start by simply cutting down on the little everyday extras that add up over time. For example, you could cut down restaurant dinners from five nights a week to two. Bring a packed lunch to work on some days. Instead of buying a $4 coffee every day, limit this habit only to workdays.

These are little luxuries that you don't really need every single day. By cutting down on how often you spend on these kinds of things, you'll be able to put aside some cash that can go a long way towards saving you stress in the future.

Commit to not touching your emergency fund unless it's an emergency

An emergency fund should be liquid as possible, which means you want to have quick and easy access to cash when an emergency happens. This is why most people prefer setting up a separate savings account for this kind of fund. However, it's easy to "borrow" a couple of dollars from the fund for the week's groceries and then forget to replace the money in the account after. It requires discipline to not touch your emergency savings unless absolutely necessary.

Emergencies can happen to anyone and they have a way of taking us by surprise. It pays to be prepared, and having some financial security in the form of an emergency fund can reduce a lot of the stress of the unplanned horrors that life loves to drop at our feet.

Are you ready if an unexpected bill hits you in the wallet tomorrow? If not, then start saving!

Getting into the habit of saving for an emergency means adopting a new outlook on money and our spending habits. If you know someone who could use a push to put some money aside for a rainy day, then share this article with them. It’s not always an easy thing to do alone, so talk it through and support each other!

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