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The earned income tax credit helps provide refunds at tax time to qualifying low- and middle-income families.
But the federal tax credit, which was first enacted in 1975, could be improved to provide more help to Americans.
“This is like a no brainer, lift up society,” JPMorgan Chase CEO Jamie Dimon said. “And I would pay for it by taxing the wealthy a little bit more.”

Jamie Dimon, chief executive officer of JPMorgan Chase & Co., at the UK Global Investment Summit at Hampton Court Palace in London, UK, on Monday, Nov. 27, 2023. 
Chris Ratcliffe | Bloomberg | Getty Images

When filing tax returns this season, low- to middle-income families may have money coming back to them, thanks to the earned income tax credit.
The earned income tax credit, or EITC, is refundable, which means eligible workers receive a refund of the difference if the value of the credit is larger than the federal taxes they owe.

Families with children and incomes below about $46,600 to $63,400 in 2023 may qualify for the EITC this tax season, based on their marital status and number of children in their households.

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But the EITC — which provides around $60 billion annually to workers and their families — could be reformed to be more efficient, experts said at a panel hosted by the Bipartisan Policy Center on Friday.
“This is like a no brainer, lift up society,” JPMorgan Chase CEO Jamie Dimon said. “And I would pay for it by taxing the wealthy a little bit more.”
Increasing spending on the earned income tax credit would give more money to households and communities, and therefore providing more money for food and children’s education, he said.
“It brings dignity,” Dimon said. “That money will be spent in local communities.”

One tax break that might be eliminated to help boost the EITC is the state and local tax deduction, which provides a federal tax deduction of up to $10,000 for certain taxes paid to state and local governments, suggested Paul Ryan, former Speaker of the House and Republican representative for Wisconsin.
Dimon agreed.
“There are so many tax breaks out there that shouldn’t be there,” Dimon said.
Dimon has spoken out on policy issues before, including recent testimony before Congress where he said rules for Supplemental Security Income benefits should be updated.

How the earned income tax credit may be improved

The EITC was first enacted in 1975 to help with stagflation, a combination of slow economic growth and high inflation, that was then affecting the U.S. economy. Today, in addition to the federal tax break, 31 states and Washington, D.C. offer a state version of the earned income tax credit to further supplement wages, according to the Bipartisan Policy Center.
But there are ways the credit could be more effective, such as by expanding eligibility for childless workers, a change that was temporarily put in place in 2021 in response to the Covid-19 pandemic. The credit could also be adjusted so both younger and older workers may qualify.
Approximately 1 in 5 workers who are eligible for the federal earned income tax credit fail to claim it, according to the Bipartisan Policy Center.
In addition, there is also a high rate of improper payments, due to the credit’s complex eligibility rules.

Much of those problems can be solved by improving the technology used to administer the credit, Ryan suggested.
Having a more efficient system could make it possible to have it so the credit shows up in workers’ paychecks, rather than as one lump sum when they file their taxes, he said.
“I would rather have it embedded in the paycheck itself, so that each pay period you have that higher pay, so that you can budget more accordingly,” Ryan said.
Improved technology could also help get the earned income tax credit to eligible workers who are not currently receiving it, while also make it easier to change the terms of eligibility.
“We have a lot of expiring provisions coming in tax law in at the end in the next session of Congress,” Ryan said. “There is where you have churn of tax policy where you probably have an opportunity to make some of these expansions.” More

Smart Tax Planning

Some taxpayers will soon qualify for Direct File, a free tax-filing option from the IRS.
The pilot will begin as an invitation-only service before rolling out to certain taxpayers in 12 states by mid-March.
In 2023, individual U.S. taxpayers spent an average of $150 to prepare and file returns, according to the IRS.

IRS Commissioner Daniel Werfel testifies before a Senate Finance Committee hearing on Feb. 15, 2023.
Kevin Lamarque | Reuters

As the tax season kicks off next week, Americans have several free filing options — and some taxpayers will soon qualify for a new offering from the IRS.
Known as Direct File, the agency’s free filing software pilot will begin as an invitation-only service for a group of government workers before rolling out to certain taxpayers in 12 states by mid-March.

The software is “simple, secure and free,” Laurel Blatchford, the U.S. Department of the Treasury’s chief implementation officer for the Inflation Reduction Act, said in a statement Thursday.

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Direct File comes after a feasibility report authorized by the Inflation Reduction Act. The report found nearly three-quarters of taxpayers expressed interest in a free IRS-provided filing system.
In 2023, individual U.S. taxpayers spent an average of $150 to prepare and file returns, according to the Treasury Department.
The IRS on Thursday provided a Direct File demo to CNBC and other media outlets. Here’s what taxpayers can expect for the upcoming season.

Internal Revenue Service

Direct File is ‘starting small’ with 12 states

The IRS Direct File pilot intentionally starts with a limited group of taxpayers with relatively simple filings, according to IRS officials.

“We’re starting small: as the filing season begins, the pilot is undergoing continuous testing with taxpayers, so we can identify and resolve issues,” IRS Commissioner Danny Werfel said in a statement Thursday.
Eligible states will include Arizona, California, Florida, Massachusetts, Nevada, New Hampshire, New York, South Dakota, Tennessee, Texas, Washington and Wyoming.
While Direct File won’t cover state returns, Arizona, Massachusetts and New York residents can immediately continue to state filing by importing Direct File data. California residents will use CalFile with some pre-populated information.
“We will be working closely with the 12 pilot states in this test run, which will help us gather information about the future direction of the Direct File program,” Werfel said.

Who qualifies for IRS Direct File

Residents of eligible states with a simple, straightforward return can qualify. The pilot will start with limited types of income, credits and deductions, IRS officials said.
While only certain taxpayers can use Direct File, the bilingual software includes built-in live chat support with IRS assistors.
The pilot will only accept Form W-2 wages, Social Security retirement income, unemployment earnings and interest of $1,500 or less. This means the pilot won’t include anyone with gig economy work or business income.

Internal Revenue Service More

Smart Tax Planning

The opening of tax season for 2023 returns officially starts for individual filers on Jan. 29.
Experts cover a few key changes taxpayers need to consider before filing this year.

Kseniya Ovchinnikova | Moment | Getty Images

The opening of tax season is approaching — and experts have a few reminders before you file.
The IRS expects to receive more than 128.7 million individual tax returns before the deadline for most filers, which is April 15.

Generally, the best way to avoid a delayed refund is by filing a complete and electronic return and using direct deposit. Last year, the average refund was roughly $3,200.

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Here are the key things taxpayers need to know before filing this season.

1. Watch for proposed child tax credit changes

House lawmakers last week advanced a bipartisan tax package with proposed changes to the child tax credit for 2023. If enacted, the adjustments could provide a bigger tax break to lower-income U.S. families, according to estimates from the Urban-Brookings Tax Policy Center.
Currently, the child tax credit is worth up to $2,000 per qualifying child for 2023, which reduces your taxes on a dollar-for-dollar basis. For 2023, $1,600 of the credit is refundable, meaning you can still get at least $1,600 without taxes owed.
“There are 19 million children who do not get the full child tax credit because their parents’ income is too low,” said Chuck Marr, vice president for federal tax policy for the Center on Budget and Policy Priorities.

There are 19 million children who do not get the full child tax credit because their parents’ income is too low.

Chuck Marr
Vice president for federal tax policy for the Center on Budget and Policy Priorities

The proposed changes would increase the refundable portion of the credit to $1,800 for 2023 and make the formula more generous for families with multiple children.
However, negotiations for the bipartisan tax plan are ongoing. If enacted, the child tax credit changes could happen after the tax season begins Jan. 29.   
Experts say eligible families shouldn’t rush to file before possible legislation changes. If you claim the refundable part of the child tax credit, you may not get a refund earlier than Feb. 27, according to the IRS.

2. Know the reporting changes for Form 1099-K

If you received business income via payment apps such as Venmo and PayPal, or from e-commerce companies such as eBay, Etsy or Poshmark, you’re less likely to get a tax form for 2023 — thanks to an IRS change in November.
For 2023, you can expect payment apps to send Form 1099-K if you had more than 200 transactions worth an aggregate over $20,000. But the IRS will phase in a $5,000 limit for 2024.

Don’t lean towards that inclination to cheat if you didn’t get a 1099-K.

Bill Smith
National director of tax technical services at CBIZ MHM

Regardless of whether you receive Form 1099-K for 2023, you still must report business income, according to Bill Smith, national director of tax technical services at financial services firm CBIZ MHM.   
“Don’t lean towards that inclination to cheat if you didn’t get a 1099-K,” he said.

3. Consider free tax filing options

There are several options for filing your federal taxes for free this season, including a limited Direct File pilot through the IRS.
While there’s not an official launch date for Direct File, the agency aims to have the pilot widely available to certain taxpayers by mid-March, according to IRS officials.
Eligible states include Arizona, California, Florida, Massachusetts, Nevada, New Hampshire, New York, South Dakota, Tennessee, Texas, Washington and Wyoming.

Internal Revenue Service

“The 2024 pilot is an opportunity for the IRS to learn how best to deploy Direct File to meet the needs of taxpayers and test core improvements to the tax filing experience,” Laurel Blatchford, the U.S. Department of the Treasury’s chief implementation officer for the Inflation Reduction Act said in a statement Thursday.

Other free tax filing options may include:

IRS Free File: Free File offers online guided tax prep software if your adjusted gross income is $79,000 or less.
Volunteer Income Tax Assistance: VITA provides nationwide basic tax prep if you make up to $64,000.
AARP Foundation Tax-Aide: Low- to moderate-income filers over age 50 may qualify for Tax-Aide.
MilTax: There’s also a free filing option for members of the military community.
Free Fillable Forms: Taxpayers of all income levels can use Free Fillable Forms from the IRS, the electronic equivalent to filing a paper return. More

The U.S. has no federal bereavement leave policy, but workers in mourning still have options.
Here’s what they should know.

Fg Trade | E+ | Getty Images

After the loss of a family member or close friend, one of the last things someone wants to think about is their job. Unfortunately, they often have to.
The U.S. has no federal bereavement leave policy, meaning workers aren’t guaranteed time off after the death of a loved one to attend a funeral and grieve.

President Joe Biden in 2021 proposed a 3-day bereavement leave policy in his Build Back Better spending package, but the provision was dropped from the social safety net bill after objections from centrist Democrats. Mourning has been a major theme of Biden’s presidency, with him speaking often about losing his son Beau, who died in 2015 to brain cancer at age 46.
“Not being given this time for adjustment puts enormous additional pressure on the mourner,” said Mikolaj Slawkowski-Rode, an assistant professor of philosophy at the University of Warsaw and editor of the essay collection “The Meaning of Mourning: Perspectives on Death, Loss, and Grief.”
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Despite the lack of federal bereavement leave, workers dealing with a loss may still have options. Here’s what they should know.

Your employer may have its own policy

Around nine out of 10 U.S. companies offer bereavement leave, according to the International Foundation of Employee Benefit Plans.

“Providing flexibility during a challenging time of loss is something many organizations are willing to work with employees on,” said Julie Stich, vice president of content at the International Foundation of Employee Benefit Plans.
Some employers’ policies are especially generous, Stich said. (Johnson & Johnson, for example, extends 30 days off for workers who have lost an immediate family member.)
“In our survey, there were two companies that offered 40 days for immediate family, grandparents and in-laws,” she said.

Adam Lister | Moment | Getty Images

The leave companies provide tend to vary based on who in your life has died. The average for an immediate family member was around five days, compared to roughly one day for a close friend, IFEBP found.
A small number of companies even permit workers to take time off to grieve the death of a pet.

Some states offer bereavement leave

Options for workers without bereavement leave

Workers without bereavement leave who have recently lost someone can ask their employer if they can use vacation or sick days to mourn, Stich suggested. Working remotely for a period or taking unpaid time off may also be options.
“As grief is a journey, flexibility may be needed over the course of several months or longer,” Stich said.

Grieving workers may have other options still.
While bereavement is not usually an acceptable legal reason to take time off under the Family Medical Leave Act, there are exceptions, said Jeff Nowak, co-chair of the Leave and Accommodations Practice Group at Littler Mendelson. (The FMLA offers certain workers up to 12 weeks of unpaid, job protected leave for a number of reasons, including the birth of a child or the need to care for a spouse or parent with a serious health condition.)
“FMLA leave likely would be available to the birth mom to the extent that she needs to recover from any medical procedures associated with miscarriage or still birth,” Nowak said.
A worker may also be able to use the FMLA if their mourning has left them with a serious health condition, such as anxiety or depression, that makes them unable to perform their job, he said.
Similarly, the Americans with Disabilities Act, or ADA, protects conditions including depression, and entitles workers to leave, Nowak added. More

Inflation has prompted even wealthy Americans to curb their spending habits.
But affluent millennials still feel pressured to spend to show they’re successful, a recent survey finds.
To build true wealth, experts say they may want to reframe their thinking.

Ascentxmedia | E+ | Getty Images

High inflation has prompted even well-to-do Americans to rethink their spending habits.
But one group — affluent millennials — are more likely to lie or exaggerate their finances to appear financially successful, according to a recent survey from Wells Fargo.

That goes for 34% of affluent millennials versus just 20% of Gen X or 4% of baby boomers.
More than half of affluent Americans have cut back on luxury purchases post pandemic. Moreover, most say they wait until items are marked down before they buy them.
Yet affluent millennials — with $250,000 to more than $1 million in investable assets — are going to great lengths to appear wealthy.
Wells Fargo found 29% of affluent millennials admit they sometimes buy items they cannot afford to impress others.
Meanwhile, 41% of affluent millennials admit to funding their lifestyles with credit cards or loans, versus just 28% of Gen Xers and 6% of baby boomers.

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More than half — 51% — of affluent millennials say their efforts are working, with people assuming they are wealthier than they are.
But they are paying a price, with 40% reporting they have taken on more debt than they would prefer.
Affluent millennials have been affected by inflation, a high cost of living and the restarting of federal student loan payments, if they still carry those debts, said Emily Irwin, managing director of advice and planning at Wells Fargo.
“Yet they want to have a reflection of, ‘We’re working hard, and therefore we’re successful, and we can still do everything that we want to do,'” Irwin said.

Money still a taboo topic

Despite the displays of rich lifestyles that appear on social media, two-thirds of individuals surveyed are reluctant to talk about money, according to Irwin.
“It seems to be a real silent journey that individuals are on,” Irwin said.
Women in particularly are more hesitant to discuss financial topics, except for earnings.
Meanwhile, men are most reluctant to talk about their earnings, though they are willing to address most other financial topics, including investments, balance sheets and debt.
Silence around money can encourage illusions about how much money other people really have, according to Irwin.
Regardless of what someone’s financial picture is, it is easy to draw conclusions from what they portray on social media, Irwin said.
“There’s this tension between looks and appearances and taking on debt,” Irwin said.
While people may be willing to portray a certain lifestyle — and the balance sheet necessary to support it — it is important to keep in mind that that may or may not be true behind the scenes, she said.

Not spending key to becoming rich

Much of people’s behaviors come down to their money stories – How did they grow? How were they raised with money? And how does that have an impact on their spending and saving behaviors now?
People who are trying to put on a show of affluence tend to come from poor homes and also tend to not have as much money or net worth, notes Brad Klontz, a certified financial planner and expert in financial psychology and behavioral finance. Klontz is also a member of the CNBC FA Council.
“It’s just not representative of how most people become wealthy and how most wealthy people spend their money,” Klontz said.
Ultra wealthy individuals won’t show you their wealth on Instagram or show you their designer labels and Gucci belts, he said. Instead, they’re often enthusiastically frugal.
“The only way to grow net worth is to not spend your money,” Klontz said.
Before making discretionary purchases, ask yourself some questions first, Irwin suggested.
First, do you have enough cash flow to support those expenditures?
Second, do you have enough money saved for emergencies?
Additionally, are you paying yourself in a retirement plan, either through an employer or self-directed IRA?
“Those are the kinds of things that you want to be able to identify as you put on your oxygen mask first,” Irwin said.
“Only after that are we really able to think about, ‘Hey, is splurging appropriate, given the overall financial picture?'” she said. More

Microsoft joins a list of major tech companies that announced layoffs at the start of 2024.
If you’re offered a voluntary buyout deal, there are a few things to consider before you accept.
“Buyout regret is real,” said Suzy Welch, a career expert and CNBC contributor.

Skynesher | E+ | Getty Images

Microsoft joined a list of big tech companies that announced major layoffs at the start of 2024.
The technology company plans to cut about 9% its Gaming Unit headcount, amounting to 1,900 laid off workers, according to a memo obtained by CNBC.

Earlier this week, EBay said it plans to let go 1,000 employees, or 9% of the company’s staff. These announcements join a flurry of layoffs from tech behemoths like Amazon and Google.
Amazon let go of 30 employees in its Buy with Prime unit while Google has more job cuts slated for the year after paring its headcount of central engineer and hardware workers.
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Meanwhile, SAP, the German software company, plans to offer job changes or voluntary buyouts for 8,000 employees as part of its restructuring program for 2024.  
With all these recent layoffs, if you find your company aims to carry out voluntary buyouts, there are a few things to consider before you accept.

“Buyout regret is real,” said Suzy Welch, a career expert and CNBC contributor. “People take them in the moment. They think, ‘The money’s good, and ‘Non-voluntary layoffs are going to be next.'”
If you ever receive a buyout deal, first assess the value of the financial package.
“How many months of severance pay will you get? Will you have health coverage and for how long? How will your retirement benefits be affected?” said Julia Pollak, chief economist at ZipRecruiter.
Afterwards, see if there’s room for negotiation, experts say. For example, explore options to work fewer hours or find ways to boost your buyout deal, they advise.

Always make sure you get a written letter of recommendation and not the promise of one before signing the dotted line.

Suzy Welch
career expert

“Management is not expecting 100% acceptance.” Welch said. “Maybe a deal can be struck for different [or] less work so you can keep doing what you love.”
Ask if you can stay in your job under different leadership or on a different team, Pollak added.
If not, seek an additional month or two of severance pay based on your performance and tenure, or an extra six months of health insurance coverage, she said.
“These kinds of improvements can be worth a great deal of money and have a large effect on your financial situation during your job search,” Pollak said. “Try to negotiate a departure on the best possible terms, with the longest possible benefits coverage and severance pay, or largest possible lump sum payout.”

The worst possible outcome is if the only alternative to the buyout is being involuntarily terminated without the benefits, Pollak explained.
“Always make sure you get a written letter of recommendation and not the promise of one before signing the dotted line,” Welch said. More

Smart Tax Planning

If you’re looking for an accountant to help you with your taxes this year, good luck.
As fewer college students graduate with accounting degrees, the number of accountants and certified public accountants has been declining.
Therefore, you might need to get creative if you have not secured a tax preparer yet.

Alvaro Gonzalez | Moment | Getty Images

Why there’s an accounting shortage

Accounting has a reputation of long work hours coupled with stressful deadlines, leading college students to opt for other lucrative roles in finance like investment banking, consulting or data analysis.
The declining birth rate also plays a role into the low supply of accountants, according to Henry Grzes, lead manager for tax practice and ethics with the American Institute of CPAs.

“It is reflective of a declining population of individuals who are pursuing those degrees that would allow them to sit for the CPA exam, but that’s coupled with the fact that there’s less students in general,” Grzes said.

While the results from 2020 and 2022 could have been impacted by the Covid-19 pandemic, Grzes says the bumps of new test takers in 2010 and 2016 reflect a change in the CPA exam.
Therefore, to address the decline of new professionals in the field and “expand the CPA pipeline,” the format of the CPA exam will face changes that will go into effect this year, Grzes said.
In 2024, the new CPA exam will consist of three core sections: Financial Accounting and Reporting, Auditing and Attestation, and Taxation and Regulation. Candidates will take an additional exam of the discipline of their choice: Business Analysis and Reporting (BAR), Information Systems and Controls (ISC) and Tax Compliance and Planning (TCP).
“That’s the reason the exam was changed: to allow more people to have that designation. The CPA designation is a very important standard,” Grzes said.
However, these efforts will take time to materialize in the market. For now, here are some things you can do if you need an accountant this tax season:

1. Broaden your search to enrolled agents

If you couldn’t hire an accountant or CPA to handle your taxes, enrolled agents may be a safe bet.
Enrolled agents are experts who focus solely on taxes and must pass three exams (an individual exam, a business returns exam and an ethics exam) that are offered directly through the IRS, said Tommy Lucas, a certified financial planner and enrolled agent at Moisand Fitzgerald Tamayo in Orlando, Florida.
Some tax preparers only carry a preparer tax identification number or PTIN. While they can certainly prepare and file your tax returns, they can’t represent taxpayers before the IRS in case there’s any notices or an audit, add Lucas.
However, tax attorneys, CPAs and enrolled agents can represent taxpayers.
“If a client receives a a notice, I can contact the IRS on their behalf,” Lucas said.

2. Consider online filing options

There are a number of tax filing options available for consumers online, that are free and paid.
Paid tax software may have options that offer you some expert support, such as TurboTax, H&R Block and TaxSlayer. These platforms all have access plans that offer some kind of professional support for a higher fee.
However, before your type in your personal information into external tax filing platforms, make sure you have a full understanding of the costs and the expertise of the platform’s experts providing tax help.

3. Look into local community resources

The IRS has a programs that offer free basic tax return preparation for qualified individuals: volunteer income tax assistance, or VITA, and tax counseling for the elderly.
Make sure the volunteer workers have completed the annual filing season program in addition to having a PTIN.
“That will at least give baseline knowledge to prepare a simple individual tax return,” Lucas explained.

4. File your taxes later in the year

If a CPA you hope to work with isn’t taking on new clients during tax season, see if you can negotiate for help later in the year, Lucas said.
To get an automatic six-month extension, you have to file Form 4868 online through IRS Free File. Or, you can make an electronic payment and select “extension” as the reason, adding an automatic six-month extension without filing Form 4868. Keep in mind that you still need to pay taxes owed by the April deadline.
In the meantime, make sure to have all of your documents in order, it’s “the number one thing to stand out,” said Lucas.
Putting someone through the additional task of organizing your records will not only give the tax preparer more work, you might get a higher fee.
“[Those] who just hand you all their receipts and their bank statements and now you have to do the book keeping on top of it … that’s very much frowned upon,” Lucas said. More

Many Americans cannot cover a $1,000 emergency expense with cash, a new survey finds.
It may not be our fault. “We’re just not wired to save,” a behavioral finance expert says.
But there are steps you can take to make it more emotionally satisfying to set aside money.

Brand X Pictures | Stockbyte | Getty Images

When faced with an unexpected $1,000 expense, more than one-third of Americans would borrow the money, according to a new Bankrate survey. That may include tapping their credit cards, seeking money from friends or family or taking out a personal loan.
Most would not turn to cash savings because they don’t have it, the personal finance website found.

Fewer than half of Americans, 44%, say they can afford to pay a $1,000 emergency expense from their savings, according to Bankrate’s survey of more than 1,000 respondents conducted in December.
That is up from 43% in 2023, yet level when compared to 2022.
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“We’re just not wired to save,” said Brad Klontz, a certified financial planner and expert in financial psychology and behavioral finance. Our brains are instead programmed to focus on our immediate needs.
Saving “goes against our natural instincts,” said Klontz, who is a member of the CNBC Financial Advisor Council.

But there are steps you can take to rewire how you think about savings and meet your goals.

Why Americans are prone to ‘financial fragility’

Almost two-thirds of respondents, 63%, say high inflation has left less room to save for emergencies. Meanwhile, just 19% say they are saving more because of high interest rates.
“There’s a persistence of fragility in American society,” said Mark Hamrick, senior economic analyst at Bankrate.
“There’s more financial fragility out there than I think is widely understood,” he said.

The Covid-19 pandemic, which prompted millions of Americans to seek help from food banks amid widespread layoffs and furloughs, is one example of how a sudden income loss can make it impossible to pay for everyday needs, Hamrick noted.
Living paycheck to paycheck has become the norm for many Americans, research has found. That leaves people little to no opportunity to save.
To build a cash cushion, the best advice is to start with your current budget and adjust your spending. Where you can, save first and spend second, Hamrick said.
Experts generally recommend having three to six months’ living expenses set aside to protect against unexpected events.
Yet, year after year, surveys show building meaningful emergency savings remains a difficult hurdle for many Americans.

How to reframe how you think about saving

To successfully boost emergency savings, it may help to reframe the way you think about that goal, Klontz, said. What may help to overcome that is to visualize, which helps create an emotional experience that can help activate behavioral change.
For example, picture a worst-case scenario such as losing your job, Klontz suggested.
If that income stopped tomorrow, how many months would you have before your belongings are out on the street, or until you have to call a friend or relative to beg to stay with them? Or how long before you start withdrawing money from your retirement funds? How long would it delay your retirement?
By tapping into how those situations would make you feel, you become emotionally invested in taking action, Klontz said.

The next step is to identify ways to stop spending money and direct it toward an emergency fund, which admittedly can be a “painful exercise” for many Americans, Klontz said.
Instead, many people tend to think of their credit cards as an emergency fund, which may lead them to pay interest rates of 20% or more if they use it to cover an unexpected event and do not pay it off in the first month.
Likewise, if you keep a surplus of cash in your checking account, you’re more likely to spend it, Klontz said.
Another way to help encourage savers to take action is to name the emergency fund something emotionally triggering, Klontz said, such as “financial security fund” or “financial freedom fund.”
By labeling the money something that’s associated with an emotional attachment such as financial security, you’ll be less likely to dip into that money to go out to eat, Klontz said.
That “psychological barrier” may help protect the emergency fund money, he said.Don’t miss these stories from CNBC PRO: More