Suze Orman Says You Need an 8-Month Emergency Fund at Least. Is She Right?

A stressed young woman looking out the window.

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It’s an aggressive attitude – but an understandable one.

Important points

  • It is important to have savings for unplanned expenses and situations.
  • While an eight-month emergency fund may seem like overkill, there’s a reason one financial expert recommends it.
  • The pandemic showed the financial impact of a crisis, and many people suffered because they didn’t have enough savings.

Financial experts have said for years that it’s important to have money in a savings account that’s earmarked for emergencies. That way, if you lose your job or find yourself in an expensive situation you didn’t anticipate, like a home loan, you’ll have money. B. a sudden repair of your house. And you don’t have to take on costly debt to cover every expense or scenario you face.

Up until the pandemic, the general consensus was that everyone should aim for an emergency fund with enough money to support them for three to six months. And that’s what financial guru Suze Orman used to think.

But Orman has since changed her stance on the emergency austerity front. And you might want to follow their updated guide.

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Why you might need more emergency savings

The logic behind a three to six month emergency fund was to have enough money to get through a spell of unemployment. But amid the pandemic, Orman has upped her recommendation to an eight to 12 month emergency fund after seeing how long some people have been out of work in 2020.

Admittedly, the COVID-19 pandemic was an extreme situation as the nation (and the world) grappled with an unprecedented health crisis. But it’s not unreasonable to think that a similar situation could arise again. So while an eight-month emergency fund may seem like overkill, it can actually prove very useful even during a major crisis.

And to be clear, this crisis doesn’t have to be national or global. It could also be a personal one.

Let’s imagine you get sick and are unable to work for eight months while recovering from surgery or treatment. If you’re the only breadwinner in your household, you may need to have a full eight months of living expenses in the bank to get through that time without going into debt.

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How to strengthen your emergency fund

Maybe you managed to save up six months of living expenses in the bank and thought you were set for emergency savings. The idea of ​​having to save a few more months’ worth of bills may seem daunting.

But remember, just as you didn’t build your initial emergency fund overnight, you can also take time to build up your cash reserves. In fact, if you already have three to six months of spending on hand in the form of savings, that should take a lot of the pressure off and allow you to slowly but steadily improve your balance.

In terms of strategy, take a look at your current spending and see where you can save most easily. If you really don’t want to cut back on your spending, find a second job for a few months and save the extra wages you earn.

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An eight-month emergency fund may seem like a lot of money to keep in the bank. But anyone affected by the COVID-19 crisis will probably tell you that if they had saved so much money, the situation would have been much easier to manage. So if you want real protection, it’s a good idea to heed Orman’s advice.

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