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Low Wage Earners Need Emergency Fund Too

May 15, 2012

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Everyone knows the importance of setting aside money for a rainy day. However, when your income is already on the low side, saving is easier said than done. If you are a low-income worker, the reality may be that once you pay rent or mortgage, utilities, food, transportation, and personal care costs, you have little or nothing left over. Which is why the less you make, the more you need an emergency fund.

Why Low Wage Workers in Particular Need Emergency Funds

When the recession hit, millions lost their jobs. Not surprisingly,
lower wage workers were more likely to lose their jobs and remain unemployed or underemployed. Unfortunately, the majority of these workers, like all U.S. workers, had no emergency fund to fall back on. And while a period of unemployment or underemployment may make saving for the next emergency impossible, it should reinforce the importance of having one when circumstances change.

Never Too Late

There are numerous reports of low wage workers permanently dropping out of the labor market. However, if you are one of the lucky few still employed, start contributing a set amount to an emergency fund on a regular basis. A few ways to free up money from your already low wages is to take advantage of local, state and federal programs. There are programs and nonprofit groups whose purpose is to assist hard working people and their families.

Use Tax Credits to Increase Your Tax Refund

As a low wage worker, you and your family may be eligible for tax credits that may increase your annual tax refund or decrease the taxes you owe. The
Earned Income Tax Credit (EITC), Child Tax Credit, and Saver’s Credit are three such credits. To make sure you are taking advantage of these available programs for workers, contact the local IRS Volunteer Income Tax Assistance (VITA) program.

VITA is a free tax advice and preparation service funded by the IRS and provided to low income workers. Local organizations provide the services at local schools, libraries, and other public facilities. To locate a VITA office in your community, call your local or state government office. You may also search for them on the Internet by typing the words “VITA” and the name of your city, county, borough or state, in your web browser.

Child Health Insurance Programs (CHIP)

Even when employers offer health insurance to low wage workers, the cost of the monthly premium is often unaffordable. Child Health Insurance Programs are available in every state and the District of Columbia. CHIP programs are available to working families who do not qualify for Medicaid but cannot afford private insurance through an employer or private plan. Some states offer other premium assistance programs to workers who cannot afford private insurance. To locate your state CHIP office, check out the
BenefitsAll Benefit Resources State Resources Guide.

Create an Emergency Fund with Relatives and Friends

Some of the most generous people are the ones who make the least amount of money. Low wage earners often pool their money with trusted friends and relatives to purchase everyday goods. Consider pooling money with trustworthy
family members and friends to create an emergency fund.
  • Decide specifically what the fund will be used for (job loss, medical bills, car repairs)
  • Decide how much will be contributed and how often
  • Decide how the funds will be saved (e.g., savings or money market account)
  • Decide how the funds will be distributed
  • Decide who will have primary and secondary responsibility for managing the fund
Even when living paycheck to paycheck, you can find ways to create an emergency fund. Make sure you take advantage of all available tax credits to increase your chances of getting a refund. Do not pay someone to prepare your tax return. There are free tax advice and preparation services available to you in your community. Also, save money on health insurance premiums by using state health insurance programs designed for hard working families. Lastly, consider pooling your savings with trusted family and friends and depositing it into an interest bearing account.
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