Some households can weather a $400 financial shock, research finds, but others have to get creative.

• Higher prices have made it more challenging for Americans to stretch their paychecks.
• New research shows that many households can cover an emergency $400 expense by utilizing a combination of cash, disposable income, or short-term credit.
• One expert says that cash is the preferred method for paying for unexpected expenses.

Higher prices have made it more difficult for Americans to stretch their paychecks.

A recent JPMorgan Chase Institute analysis of a sample of 5.9 million households through anonymized banking data reveals that most households have enough liquidity to cover "moderate expense shocks."

Chris Wheat, president at JPMorgan Chase Institute, stated, "We frequently receive inquiries such as 'Do individuals live paycheck to paycheck'?"

In 2025, the Social Security cost-of-living adjustment may be 2.6%. The inflation breakdown for July 2024 is as follows. The U.S. construction boom is causing rents to decrease.

A typical measure of household liquidity is whether Americans can handle an emergency $400 expense, according to him.

How people would handle a surprise $400 expense

In 2023, 13% of adults would not have been able to cover a $400 unexpected expense, according to the Federal Reserve.

JPMorgan Chase Institute found that the share of individuals who cannot cover a $400 emergency expense is 8% when considering available cash, disposable income, or short-term credit. Despite this, the share of households that cannot weather a $400 emergency expense remained constant from 2022 to 2023.

The study reveals that financial resiliency is higher than what appears when examining cash reserves alone, and suggests that obtaining affordable credit can aid in this.

According to JPMorgan Chase Institute, 92% of families can cover a $400 "expense shock" through a combination of cash savings, disposable income or short-term credit.

Another 20% of households can cover the expense with a combination of cash and disposable income, while 3% can use cash, disposable income, and a credit card without incurring interest. Additionally, 2% of households would use cash, disposable income, and a credit card that can be paid off within three months.

Using 100% cash is still the preferred method

Using credit to manage a temporary financial shortfall can lead to long-term debt.

For that reason, financial advisors recommend building a cash cushion against emergencies.

"Good debt and bad debt exist," stated Ted Jenkin, a certified financial planner and the CEO and founder of oXYGen Financial, an Atlanta-based financial advisory and wealth management firm.

Jenkin, a member of the CNBC FA Council, stated that almost all debt, except for having a long-term mortgage, is bad debt.

Maintaining an emergency fund that covers at least three to six months of living expenses can be challenging. However, there are strategies that can assist in achieving this goal.

• When you receive extra income from a pay raise or bonus, one-third should go to taxes, one-third to enjoyment, and the remaining one-third should be saved by either paying off credit card debt or building an emergency fund, according to Jenkins. This, he said, is the key to avoiding financial trouble.

• Jenkin advised putting away the third paycheck in a savings account for an emergency reserve to help normalize finances.

• Jenkins advised that many people have unused gift cards that can be exchanged for cash at sites such as Raise or CardCash. However, the exchange may not be dollar for dollar. Nonetheless, trading those unused cards for cash can aid in building up emergency reserves, Jenkins stated.