As you build a strong financial capital, many financial experts will advise you to build an emergency fund. No matter how you prepare for the future, unexpected things such as losing your job, or having a medical complication can happen in your life.
These emergency cases can drain your money easily and quickly if you don’t have a backup plan. This is where your emergency funds come in. Your EF will help you cope with these unexpected expenses without affecting your cash flow too much. However, most working adults nowadays are confused as to how much money should one save to build a credible emergency fund. Well, fret not because Suze Orman will help you raise the necessary money for your EF.
The Right Amount for EF
Most financial experts will advise you to save at least 3-months of your salary worth, but Orman believes otherwise. If anything, the former CNBC TV host and renowned financial experts called them “idiots” for advising their clients with false information.
Orman explained that this formula isn’t enough to make you financially stable and secure. She gave some scenarios like losing a job and not finding one for more than a year. How will you cope with the remaining 6 months by then?
Or if you’re diagnosed with a critical illness and need to be admitted to a hospital. She doesn’t think your EF is enough to pay the hefty fine of medical bills. Instead, she recommended saving at least 12 month’s worth of your salary as your EF. That way, you’ll know you’re at least secured financially.
The Great Recession
Orman also addressed some of the people’s comments about her explanation being a little bit paranoid. She claimed that it wouldn’t hurt anyone to think of the extreme. She also gave an example of the financial crisis the world experienced 11 years ago.
Orman encouraged everyone to think back about what happened last 2007 and imagine they’re the ones who lost their jobs and all companies, startups and giants alike, went down. Nobody had the money and financial resource to invest back then. Nobody wants to risk touching their resources for fear of failure. No companies were also willing to make an IPO because the markets were down. Likewise, you didn’t know what to do back then.
Orman added that building an EF isn’t only in preparation in case the economy goes down. But more importantly, one should be ready for their personal circumstances. What if they get sick? Or they get involved in a road accident and get hit by the car? The only way you can prepare for these crises is to build a solid emergency fund, she said.- Advertisement -
Building an Emergency Fund
While everyone is aware they need to build an emergency fund, unfortunately, only 39% of the American population have at least $1,000 allocated as EF on their bank accounts, according to the Bankrate survey. The good news though is you still have time to start saving for it.
Orman recommends you start reassessing your budget and eliminate unnecessary expenses as much as possible to make room for EF saving. If possible, she also recommends to start investing early and take advantage of the compound interest. She reiterated that no matter how little money you invest today, it’ll grow with time and you’ll end up having more money later.