While Americans try to find money to plow into retirement accounts and 401(k) plans, most seem to be neglecting another crucial savings account -- the all-important rainy day fund.
"One of the biggest mistakes people make is the failure to create an emergency fund," said Divam Mehta, founder of Mehta Financial Group in Virginia. "An emergency fund is the single most critical component of an individual's or families financial plan."
While it may be crucial, it is not reality for most, according to a new survey by GOBankingRates.com. Nearly 70% of Americans have less than $1,000 in their savings account -- and in fact, 34% say they have no savings at all.
"An emergency fund, especially in this transitory period where there is uncertainty in the market, can become the difference between financial survival and an unclimbable mountain of debt," Mehta said. "As such, without an emergency fund, people are often left to rack up credit card debt when there is an unexpected occurrences."
Mehta said he emphasizes with clients that an emergency fund should be six months of fixed costs -- insurance, groceries, rent/mortgage, etc. While it may take time to build this emergency fund, many people fail to install this major step during their budgeting and financial plan. To address that, Mehta suggests clients make small automated monthly contributions to either a savings account or money market account to build the emergency fund.
Laurie Samay, a certified financial planner with Palisades Hudson Financial Group in Scarsdale, N.Y., said six months of living expenses is a good rule of thumb since it should give enough to fall back on if someone loses their job, decides to leave a job or experiences a health emergency.