2024 will be a year to remember. Many predictions have been made that this will be the year of great spiritual uprise and prosperity. In numerology, 2024 seems to be set to bring change and growth. A year to recalibrate, take stock, and use our gifts to make the world a better place. Can this be true? Well, what we know so far is that we are facing civil wars, possible famine worldwide, and unpredictable job security. All of this uncertainty can only amount to one thing. The need to create a personalized emergency fund. This article will examine the unpredictability of our world economy and the necessity of an emergency fund.
The Current Economic Situation
Our current economic situation is in a state of flux. According to the World bank, our GDP has grown to 2.4% in 2023 and is expected to slow to 0.9% in 2024. After this downturn, it is predicted that the US economy will begin to normalize. 2025 should see a growth of about 1.7%.
What does this mean for us? Well, this means that if the predictions of the World Bank are correct. We may expect further negative effects within our daily lives such as increased unemployment, our income levels, and a decline in our economic activities, that is, more businesses will declare bankruptcy. Local residents in various European countries such as Italy, Ireland and Spain have reported seeing many local businesses such as small supermarkets, butchers, and fish markets going out of business in the months leading up to the Christmas holidays.
As of yet, the situation for 2024 seems to look grim for many families and local business owners.
The Impact of Unexpected Expenses
At the beginning of the Ukraine-Russian war. We saw an increase in our daily expenses. Especially, in European countries such as Italy, where people reported paying up to 500 a month for electrical bills. One elderly lady living alone reported to local news, that she had received a water bill of over 15,000, and the stress of the situation, resulted in her being hospitalized. According to the European Commission, even though the average family may have less disposable income in 2023, in comparison to 2018. The household saving rate in the euro area was at 14.1% in the first quarter of 2023, a significant increase of 13.32% from 2022.
In the USA, a study conducted by Northwestern Mutual reported that nearly 64% of respondents stated that they have already cut costs. 50% are building savings and 41% are delaying large expenses. However, Americans are reporting that it is a big struggle to put away funds from their income with growing expenses. The st. Louise Federal Reserve reported that personal savings only amount to 4.1% of disposable personal income as of April 2023, which is well below pandemic highs of 33.8% in April 2020 and 26.3% in March 2021 and lower than the savings rate a decade prior, 6.2% in April 2013.
A 2023 report from Northwestern Mutual found that Americans are taking three major steps to address economic uncertainty: Nearly 64% of respondents are cutting costs, 50% are building savings and 41% are delaying large expenses. Each household often utilizes multiple strategies at a time.
Still, Americans face many barriers to saving and are putting away less of their income overall. According to data from the St. Louis Federal Reserve, personal savings only account for 4.1% of disposable personal income as of April 2023. That’s well below pandemic highs of 33.8% in April 2020 and 26.3% in March 2021 and lower than the savings rate a decade prior, 6.2% in April 2013.
In both European and American countries, people’s spending habits have been changing. About two-thirds of adults stopped using or used less of a product because of inflation. 64% chose a cheaper product, and more than half (51%) reduced their savings because prices were higher.
Job Insecurity and Income Fluctuations
We are in history-making times, never before since the end of the Second World War, has the planet experienced a downward spiral of economic depression characterized by temporary work conditions and changing employment structures, with increasing worry about job security
Again as mentioned above, the beginning of 2024 is marked by political tensions between nations, potential World War 3, and still problems of various health risks. Most importantly, many jobs will be lost due to the advancement of AI, changes in demand and technology have both created and eliminated jobs, as noted by Carl Benedikt Frey, a professor specializing in AI and working at the Oxford Internet Institute. For example, professions like sommeliers and hot yoga instructors emerged from changing consumer preferences, while roles in the automotive and biotech sectors originated from significant technological advancements.
According to a recent McKinsey report, there is currently more dynamic movement in the job market than usual. There was a change in the job market, that no one has ever seen. In the past decades, people searched for job security and would remain in a job for 20 or 30 years to their pension years. Since job security no longer exists, Most people will have one or more jobs at one time, or swift jobs often to chase after higher incomes. No one is interested in job security. They just want quick large sums of payouts for their work which is why, 8.6 million people changed jobs from 2019 to 2022. This marks a 50% increase when compared to the previous three years.
.The report anticipates an additional 12 million occupational shifts by 2030, driven by growing demands in healthcare, increased digitization, and various other factors. This gives rise to the importance of creating a financial safety net.
The Role of an Emergency Fund in Financial Wellness
An emergency fund is not about becoming rich or being able to buy that mansion or villa you deserve in your old age. It is about survival. An emergency fund can be renamed to a piece of mind fund. A fund that brings a sense of financial security. Especially, in countries, such as the United States, where healthcare is not subsidized by the government but requires individuals to pay for treatments that may not be covered by standard insurance companies, having an emergency fund can be the difference between living and not living.
Companies dedicated to fostering a flourishing workforce, need to take into consideration the changing financial needs of their workers, it is no longer a mere luxury but an essential requirement to bridge these gaps by providing readily available financial resilience solutions. Among these solutions, emergency savings emerge as the primary priority for the majority of workers.
Preventing Debt Accumulation
If you do not have an emergency fund, you may be forced to use your credit cards, take loans, or mortgage your home. to cover unforeseen expenses. A California resident had shared their story with us. A few years ago, they were financially stable but did not create an emergency fund. Their eldest son was diagnosed with cancer, and to afford treatments, they had to mortgage their house. They ended up losing their job. Unfortunately, despite their best efforts, their son had died. They lost their home and ended up living in a car for three years. If they could go back, an emergency fund would have been their number one priority.
According to Federal Reserve Bank statistics , household debt is on the rise, data reveals a substantial increase of $394 billion (2.4%), bringing the overall household debt to $16.90 trillion, a significant increase from 2019.
Overall, debt has increased per household. What about our mortgage rates? Well, according to Statistica, across all European countries mortgage interest rates interest rates soared in Europe in 2022, resulting in many countries seeing rates double in just a year. In Hungary, the average mortgage interest rate reached close to 10 percent in the first quarter of 2023, up from about 3.5 percent in 2022. As for the United States, mortgage rates started to increase in 2021 and continued to increase for 2022 and 2023. This increase was also due to the federal funds rate series of hikes to offset the rising costs of inflation. The biggest increase was at the end of 2022, when 30-year fixed mortgage rates reached an all-time high of 6.49% up from 5.24 in the same year.
Financial Power
Financial power is defined as an individual’s ability to bounce back from financial setbacks. According to the federal credit union, establishing an emergency fund stands as a pivotal stride in cultivating financial resilience. This fund operates as a protective barrier during unforeseen events and diminishes the need to rely on credit or loans. Here’s a guide on how to initiate and fortify your emergency fund:
Begin with Modest Contributions
Start with small steps. Save whatever you can afford. If you can only save 50 a month, then do it! You will be glad in 5 or 10 years. As you can spare more, save more, and so on.
Automate Savings
Streamline your savings process by automating it. Set up regular transfers from your checking account to your savings account d every month. This automated approach ensures consistent contributions without the risk of succumbing to the temptation to spend the earmarked funds.
One important tip would be to save money in different currencies. A Canadian citizen had revealed to Umarp their strategy. They claimed that using currency exchange for their savings amounted to an extra 10% to 20% at the end of every year. Their strategy was to keep an eye on the markets, the second the Canadian dollar increased a little, they would quickly exchange their Canadian dollars for US, euros, or pounds.
Your target should be to at least have at least 3 to 6 months of living expenses in your savings each year. This aspirational target positions you to confront surprises with tranquility, knowing that your financial foundation is robust enough to withstand unforeseen challenges while keeping your finances intact.
The Importance of Consistent Saving Habits
Remember, setting up and creating an emergency fund is not a one-time effort, but a long process that requires discipline and saving habits. If you are in your 20s, it is a good time to start your emergency fund, because by the time you reach your retirement age, you will be financially stable. We do not know what our future holds in 30 to 40 years. Will there be a state pension or a private pension? Who knows, paying into a private pension may seem like a good idea, but will you be able to cash in on your investment in 30 to 40 years? We do not know. An emergency fund is something that you create, you control. You can decide to invest your funds, change banks, or countries, or just place your funds in a term deposit. The possibilities are endless.
One lady in Italy had told Umarp, that she started her emergency fund in her 20s, but in her early 40s, she was getting married. Her emergency fund allowed her to buy not mortgage her first home. The role of consistent saving in achieving financial goals and recommends allocating a portion of income to emergency savings regularly. This approach helps individuals stay prepared for unexpected expenses throughout their financial journey.
