Tags: Suze Orman | emergency fund | saving | Mint

Suze Orman: Your Emergency Fund Should Cover Up to One Year of Expenses

Suze Orman: Your Emergency Fund Should Cover Up to One Year of Expenses
(Dreamstime)

By    |   Wednesday, 14 June 2017 12:32 PM

Suze Orman, the personal finance adviser and former TV host, said a person’s first savings priority should be to set up an emergency fund that can cover expenses for a year.

She cited the last recession as a lesson for people to heed, especially for the millions of people who were out of work for a year or longer.

"Go back to 2007… You lost your job, you lost everything, you were working on this tech thing and all the startups went down," she said this week at the eMERGE technology conference in Miami, according to CNBC. "Nobody had any money to invest, nobody wanted to touch anything, nobody wanted to IPO because the markets were going down and you couldn't find anything to do. Think it took you just three months to find another job? Think it took you six months to find another job?"

Typically, financial advisers recommend that savers establish an emergency fund to last six months in the event of job loss or a major emergency. Most Americans have little to no savings, though.

Sixty-nine percent of Americans have less than $1,000 in savings, according to a 2016 GOBankingRates survey, while 34 percent have nothing in the bank.

"It's not just about the economy,” Orman said. “What if you get sick? What if you're hit by a car? What if something happens crazy in this world? We live in the craziest world I've ever seen in my life right now. And the only way you can take craziness out of that if for you to make yourself secure."

Finance software company Intuit has recommendations on how to set up an emergency fund on its Mint.com blog:

  1. Set a target number that feels possible. “People are more successful when they set moderately challenging and reasonably attainable goals. Approach emergency savings like you would any long-term goal, and shoot for progress, versus the end game. Calculate what three months worth of your salary amounts to so you know the large number to aim for—but divide the sum into smaller weekly figures that you can take action towards, little by little.”
  2. Make saving a non-negotiable expense. “Savings is a process that you must be proactive in directing. Build the “expense” of saving into your budget, just as you’d approach a utility or credit card bill. If you knew that going out to dinner with friends would make you unable to make your monthly car payment, for example, you’d have no choice but to postpone plans. Be just as disciplined about saving.”
  3. Be real about needs. “Ask yourself: If I lost my job, could I still afford this? If you answer ‘no,’ it’s a want—not a need. Once you’ve identified all of you non-essential expenses, rank them on a scale of importance in regards to the emotional payoff. Allow yourself to keep the top two budget items you ranked as most important—but commit to giving up your other non-essential expenses.”
  4. Track to your goal every week. “Instead of viewing savings as a sacrifice that takes away from your life, focus on whittling your way to a weekly savings goal; track your savings just as you would track your spending.”
  5. Don’t discount the cost of risk. “If you had a financial emergency and no cash, you’d have no choice but to turn to high interest credit cards and loans, or worse, foreclosing on your home, and even bankruptcy. As a result, having emergency savings of at least three months of your salary should remain a priority. In the process, you can become more aggressive in your debt payoff strategy, too.”
  6. Make your money hard to get to. “Look for an interest bearing savings account with no minimum balance or fees that offers at least 0.80% on your money—and ditch the ATM card. The harder it is to access your cash, the less tempted you’ll be to tap into your emergency fund for non-emergencies.”

© 2019 Newsmax Finance. All rights reserved.

   
1Like our page
2Share
StreetTalk
Suze Orman, the personal finance advisers and former TV host, said a person's first savings priority should be to set up an emergency fund that can cover expenses for a year. She cited the last recession as a lesson for people to heed, especially for the millions of people...
Suze Orman, emergency fund, saving, Mint
652
2017-32-14
Wednesday, 14 June 2017 12:32 PM
Newsmax Media, Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved