How Much Texans Need To Save For 6-Month Emergency Fund Revealed

AUSTIN, TX — The cost of living in Austin is increasingly on the rise, as anyone residing in the city can painfully attest. So much so, that it may take years for many residents to amass an emergency fund to cover six months' worth of expenses, according to a new study.

Bankrate.com, a financial information website, has released a study assessing how much money people in the 50 largest metros need in their emergency coffers along with the approximate length of time it would take to shore up the funds.

The upshot: Austin-Round Rock ranks 38th on the list, making it the worst metropolitan area for those hoping to save in all of Texas. Here's the breakdown: Those living in the Austin-Round Rock area need $26,712 in the bank to cover six months' worth of expenses. Yet according to the Bankrate.com report, the most judicious penny pincher in the median income bracket would be manage to save a mere $7,770 each year after housing costs and other necessities are covered.

Given that rough calculus, it would take those earning the area's median salary more than three years — 41.4 months, for precision's sake — to amass the necessary funds in savings.

As a baseline, Bankrate.com used the 2017 household median income per the U.S. Census Bureau. Researchers then subtracted mortgage payments and property taxes on a median-priced home as part of the mix and discounted factored in federal income tax (Texas has no state income tax, eliminating that consideration used in the overall study). Analysts then calculated the percentage spent on other essentials such as groceries, transportation, health care costs and utilities.

"When you tally the average property tax, home insurance cost with mortgage payments based on the median home price for the area, you find households earning the median income in each metro ($65,331 to $105,809) would drop more than half of their pretax dollars on housing," researchers wrote "Financial experts generally recommend we allot no more than about a third of our pay to keep a roof over our heads."

What's left over, ideally, should be put into savings per the Bankrate.com study's theoretical scenarios. Yet even the most conscientious saver would be hard-pressed to achieve the six-month savings goal, researchers found: "People living in areas with high housing costs could forgo all nonessential expenses for three years, religiously saving their extra dollars month after month, and still not accumulate enough cash for their recommended emergency fund."

Those intent on saving for a rainy day in other parts of the state would have an easier go of it, according to the findings:

• The San Antonio-New Braunfels area ranked 30th on the list of metro areas, yielding the best municipality for savers. There, median-income earners would need $20,151 to cover expenses over the course of six months. The goal could be accomplished in 22.7 months by setting aside $10,664 annually for the emergency fund.
• The Dallas-Fort Worth-Arlington area ranked 36th in the mix. Those living in the Metroplex would need $23,484 to cover six months' worth of expenses, but would manage to save just $9,704 in a year's time. As a result, it would take 29 months to build the needed coffers.
• Houston was two notches above San Antonio in the 32nd slot, with median earners there needing $22,449 as an emergency fund. But given the media income and cost of living in that city, residents there are only able to ideally set aside $11,039 per year. Given those metrics, it would take Houston residents making median incomes 24.4 months to amass their emergency coffers.

Despite the study's exactitude in terms of savings levels, it's all academic. Researchers acknowledge the savings scenarios outlined in their study are theoretical at best, and not everyone is able to save as outlined in the report: "Most of us don’t shove every extra dollar into the piggy bank, because we make 'nonessential' purchases for haircuts, toothbrushes, and other goods and services," analysts conceded.

You may be wondering at this point where the best and worst metro areas for building that emergency fund are located. According to the study, Memphis is the best for savers given its various metrics, where the median earner is able to st aside $15,761 annually — exceeding the $15,208 required as a six-month emergency fund.

The worst place for savers is California, with four metro areas from that state — San Diego, Los Angeles, San Francisco and San Jose, respectively — emerging as cellar dwellers on the list in terms of rankings.

Back in Austin, brisk new construction to accommodate an influx of some 155 new residents a day has had the net effect of soaring property values for everyone. Todd Christensen, education manager at the nonprofit Money Fit by Debt Reduction Services Inc., offers sobering advice on that front to those bearing the brunt of ever-higher property tax bills.

“It’s not uncommon to see people spending over 30 percent of their income on housing," he wrote in the study. "When it approaches 40 percent or more, it would make sense to start talking about other options. Among those alteratives: Renting out a room, switching from buying to renting and moving in with roommates or friends and family —compromises average Americans are increasingly forced to make in order to save or just break even.

“It’s not about cutting expenses,” Christensen added. “It’s about focusing on your top priories and knowing what your financial priorities are.”

To read the full report, click here.