And she’s right too.
Key points We may or may not see a recession in 2023; Employment numbers suggest we’re not quite there yet. Recession or not, you could face a costly bill you didn’t plan for – that’s what your emergency fund is for. Consider automating your savings and possibly even increasing your income Your emergency balance isn’t where you want it to be.
If you’ve been concerned about the state of the economy lately, you’re certainly not alone. So many big names in business and finance have predicted a recession in 2023. So far, however, employment is holding up and inflation was still above 6% according to the latest CPI summary report, suggesting that recession worries are not entirely warranted, at least for now.
Still, your personal finances are separate from the economy as a whole, so it’s important to keep your own situation in mind at all times and incorporate it into your money management. For example, we don’t have to be in a recession for your car to need an expensive repair that you have to pay for.
To that end, finance guru Suze Orman recently took to Twitter to advocate for “the biggest favor you’re going to do yourself right now.” What’s the favor? Make emergency saving a priority for you right away. Here’s why she’s right when it comes to emergency funds.
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What Can an Emergency Fund Do for You?
As someone who’s lived paycheck to paycheck for years and has often been forced to resort to credit cards to cover unplanned expenses, I’m a big fan of emergency funds. It’s a huge relief to be able to solve a problem with money from savings and know that you don’t have to pay interest on what you spend. Suze Orman also likes emergency funds and recently updated her advice on how much to keep in one. Orman used to advocate three to six months of living expenses, but now he recommends saving at least eight months or even up to a year.
While this may seem like overkill, think about what an emergency fund can do for you. Ideally, it’s money you only use when you can’t cover an expense from your regular paycheck. So sure, this could be an expensive car or home repair (or even your car insurance or homeowners insurance deductible if your insurer covers most of the cost). But it can also be a medical expense or an unexpected necessary purchase, such as a B. a household appliance.
Most importantly, your emergency fund could come to your rescue if you are fired from your job. There have been a few rounds of layoffs at big tech companies lately, and you might be concerned about your own employment situation. Sometimes we don’t get much of a warning that a job loss is imminent — think of the many thousands of Americans who were out of work because of COVID-19 almost three years ago.
How can you prioritize saving?
If your emergency fund isn’t quite where you want it to be, you may have trouble saving because you don’t have much excess income. This is a boat many people are in, and while every little helps, it’s certainly frustrating to have an emergency savings goal of $10,000 and only be able to set aside $100 a month in your savings account. At this rate, it would take you 100 months (or more than eight years) to reach that goal.
If you have room to cut some unnecessary expenses, it’s always a good move. However, be aware that if you remove all the fun things from your life, you will quickly become annoyed. I recommend increasing your income whenever possible and making any extra money you bring home the cornerstone of your emergency fund. This money isn’t already earmarked for your bills, so take full advantage of it.
You can try an emergency fund calculator to see what a good personal savings goal might be based on your monthly bills. And consider setting up automatic transfers from your checking account to your savings, perhaps at the same time as your payout. That way, the money moves before you can spend it (or forget you meant to save it).
Do this favor for your future
Even if you only save a little each time, do something great for your future self. Suze Orman is absolutely right when she says that saving for emergencies is the greatest favor you can do for yourself.
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