SUZE Orman explained how households can build an emergency cash fund – and why you need it.
Many experts urge Americans to have at least three to six months of living expenses, but Orman recommends eight to 12 months.
The money guru told CNBC last year that the emergency fund was “the most important thing in anyone’s personal financial wallet,” and the advice has since resurfaced.
She added, “If you haven’t learned that after this last year of what we’ve been through, I don’t know. You must be on another planet. “
The emergency fund is essential for any unforeseen expenses, if you suddenly lose your job, whether it is due to the Covid or not, or if you fall ill.
If you don’t have an emergency cushion, you’ll usually always worry about “what to do if any of the” and “life does happen,” she added on her blog.
Below, we put together Ms. Orman’s tips on how to set up an emergency fund.
Open a savings account – and name it
The first thing to do is to open a savings account, which can be at the bank or at the credit union where you currently have a checking account.
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Whichever account you choose, make sure it’s an account you have unlimited access to.
How to find the best savings accounts
WE explain how to find the best savings accounts.
If you’re looking for a new savings account, use sites like Bankrate and NerdWallet to compare rates and if there are minimum balance requirements.
It is also worth checking with your usual bank if you are happy to open another account with them.
Be sure to recheck any fees as they will weigh on your savings and if you can make unlimited withdrawals.
This last point is especially important because you don’t want to be denied access to your money in an emergency.
Ms. Orman also recommends naming the account for things like “My Emergency Fund” or “My Safety Net.”
This way, you will be reminded that you are tightening up security and you will be less likely to loot the account for non-essential purchases.
Set up an automatic transfer
Then it’s “crucial” to take yourself out of the equation by setting up automated deposits, Ms. Orman said.
This way, you don’t have to remember to transfer the money every month, and you will also be less likely to spend the money in your original account.
You can set up automatic transfers with digital tools and apps like Chime or Acorns, but keep in mind that these start at $ 1 per month.
Alternatively, just set up a standing order from your account for the same day each month.
Push yourself to save more every time
Of course, how much money you can save each month depends on your circumstances and your individual commitments.
But if you have a number in mind, Ms. Orman recommends that you increase it by at least 10%.
For example, if you think you can save $ 100 per month, try increasing it to $ 110.
It might be worth it, even if it seems too high, as most people will just adjust to spending less, the money guru added.
She said, “Try it. If after three months it’s too hard to do, then you can cut it down a bit.”
The long-term goal is to have eight to 12 months of living expenses set aside in the future, but that could naturally take time.
The important thing is that you start saving today, which means you’ll get closer to your goal with each passing month.
Suze Orman also revealed how to rack up $ 1,000 in savings starting with just $ 10 a week.
Additionally, she explained how to get $ 100 free cash bonus by saving money for 12 months.
The money guru recently urged parents not to “waste” child tax credit payments worth up to $ 300 per month with his top five tips.