Here's What Happens When You Live Without Emergency Savings

Have you ever dangled over a financial cliff? If you don't have an emergency fund and live paycheck to paycheck, you could be right now. But you might take some comfort in the fact that you're sure not alone. A survey from SecureSave earlier this year found that a staggering 67% of Americans couldn't afford to pay for a $400 emergency expense outright, and would instead need to find another way to cover it.

This was my own life for many years -- in fact, it has only been in the last year that I've built up savings to turn to in an emergency. Before this point, I usually handled unplanned bills by going into debt on them. Here's what life is like without emergency savings, and a few tips to build some up.

You take on debt -- and that impacts your credit

If you don't have cash to turn to in an emergency or to satisfy a surprise expense (be it actual paper money, or money in your savings or checking account), your bills don't just go away. One way or another, you've got to satisfy your obligations, or address a costly problem. But if you simply don't have the extra money necessary (and aren't in a position to borrow from another person, such as a friend or family member), you'll have to take on debt to cover that unplanned bill. If your car needs to be fixed so you can use it to get to work and other important places, you'll have to put the repair on a credit card.

In some circumstances, and if you have decent credit, you might qualify for a personal loan, and can use the proceeds from that to pay a bill. Either way, you'll be increasing the cost of that unplanned expense by going into debt on it. Credit card interest rates can be 20% or more, but if you already have a credit card with some available credit, it's an easier and faster option than applying for a loan and hoping you get approved.

When you carry debt, it impacts your credit score. Your credit utilization ratio, in particular, will be affected. This is the amount of available credit you're using. For example, if you have a credit card with a $10,000 limit, and you're carrying a balance of $4,000 on it, you have a credit utilization ratio of 40%. Since it's recommended that you keep this number below 30%, this could have a detrimental effect on your credit score.

You might need to tap your retirement savings

I have actually never had a retirement account (and so couldn't do this), but if you do, you might need to turn to the money you have saved (and ideally, invested) there to satisfy an unplanned bill if you have no emergency savings. If you're part of your employer's 401(k) plan, or you've opened an IRA account on your own, that money could come to the rescue in an emergency situation. It's not an ideal solution, though, for a few reasons.

For one thing, you'll face an early withdrawal penalty if you withdraw money early, and if you borrow money from the account and don't pay it back, you'll also be forced to pay income tax on the amount withdrawn. And ideally, your retirement savings are for your golden years. If you take $10,000 from your retirement account to pay off an unplanned bill (like a large home repair), you'll not just be losing that $10,000, but also the growth that money could have had between the time you removed it and the time you retire.

You might ignore a problem -- or hope for the best

Another result of living without emergency savings is that you might get really good at pretending all is well, just so you can avoid a big bill. You could decide to treat a minor illness or injury at home, when seeing a doctor would've meant spending money, but it also would have meant that you get well and feel better sooner.

You might decide that your car isn't actually making a suspicious clunking noise, or that the "check engine" light on the dashboard is no big deal. And while you can't afford a repair bill, you DEFINITELY can't afford to replace the car if that seemingly minor problem turns out to be a major one. Having to ignore a problem because of its potential financial impact is a terrible position to be in -- and I only wish I wasn't speaking from experience here.

How can you build an emergency fund?

As you can tell, living without an emergency fund is awful for your credit, your mental health, and likely even your physical health. So how do you build the cash to keep in a savings account for a rainy day?

• Increase your income: You can't budget your way out of not earning enough. So consider taking on a side hustle, asking for a raise, or even changing jobs altogether.
• A budget might help, however: If you wonder where all your money goes every month, getting on a budget can show you where you can safely cut back.
• Shop around for your services: See if you can switch car insurance providers to save. Maybe you can find less costly internet service, or a cheaper cellphone plan.

Building an emergency fund is absolutely worth it. Take it from me. And saving any amount helps, even if you have to start small. The first time you can handle a surprise bill without going into debt, it'll feel so good.