When it comes to establishing an adequate emergency savings fund, Grant Cardone advises emphasizing your income rather than fixating solely on the amount you save and invest.
“A rule of thumb most financial experts will tell you is to have three to six months of expenses saved for an emergency,” said Cardone, author of 11 New York Times bestselling books on business and star of Discovery Channel’s “Undercover Billionaire.”
“The problem is this old maxim doesn’t hold up well against today’s challenges.”
Find out why the old maxim no longer holds up and how to re-think emergency savings while placing a higher priority on income.
Inflation Is Making Emergency Savings Harder Than Ever
Despite the significance of having an emergency fund, a considerable number of Americans lack this financial safety net. A recent GOBankingRates survey revealed that 50% of Americans have no emergency savings at all, and all but about 9% have less than $10,000 set aside for unexpected expenses.
How To Calculate the Size of Your Emergency Savings
The combination of the housing crisis and the pandemic has shed light on the insufficiency of relying solely on three to six months’ worth of emergency savings. In addition to considering your basic expenses, Cardone suggests pondering the following questions
- Do you earn a salary or does your take-home fluctuate?
- Is all of your income made or is some of it passive income?
- What expenses could you cut immediately in an emergency?
- Where can you cut spending now to put toward the future?
Asking yourself these questions will help you determine the ideal amount you need to have saved for emergencies based on your unique circumstances. Unfortunately, you might find that the necessary amount is higher than anticipated.
Focus on Income Rather Than Savings
To build a robust emergency savings fund, Cardone believes you must shift your focus toward increasing your income, rather than merely saving and investing.
“Real financial stability and freedom mean that you would know that you and your family would have enough for any hardship,” Cardone said. “The road to that certainty is investing in cash-flowing assets.”
If you currently feel secure with the amount in your emergency savings, Cardone advises reassessing your position. You likely have not reached an adequate level of financial security, and it is time to stop focusing on savings.
“Earn more, put your money to work and be great,” he said.
By emphasizing income generation and investing in cash-flowing assets, Cardone’s approach aims to provide individuals with a more reliable and sustainable means of achieving financial stability.
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