Depending on who you ask, the rule of thumb for how much you should have in emergency savings ranges from three months’ to a year’s worth of living expenses. Yet, according to a recent study conducted by emergency savings startup SecureSave, 76% of Americans currently lack sufficient savings to cover even a single month’s worth of expenses in case of an emergency.
If you are one of the few people who do have some emergency savings, you might still be wondering if you have enough. Knowing if your savings are sufficient really comes down to one thing, according to Suze Orman, money expert and co-founder of SecureSave.
Do You Feel Secure?
Orman said that having sufficient emergency savings is less about hitting a number goal and more about how you feel.
“I’d like people to stop thinking about, ‘I need this much money and then I can stop,’ because I don’t want them to ever stop,” she told GOBankingRates. “I want them to ask themselves a different question, and that question is, ‘Do I feel secure? How much do I need to feel secure?'”
Orman said that approaching savings with this mindset encourages people to continue to save.
“What they’re going to find is, the more they save, the more they’re going to want [to continue to save] because now that they’re feeling secure, they’re not going to want to lose that security,” she said.
Why Setting a Number Goal Isn’t Always a Good Thing
You might feel a sense of accomplishment if you set a savings goal and reach it, but Orman warns that this isn’t always a good thing.
“When people set a goal of, ‘I just want to save this much money,’ they’re setting themselves up for trouble,” she said. “I want them to change that thought pattern and say, ‘I like to save more than I like to spend. I like that I feel secure. I want to have as much money as I possibly can have in an emergency savings account.'”
Another downside of setting a number goal is that it can sometimes be discouraging.
“When you give people a goal of $5,000, $10,000, it actually makes it so they don’t even try,” Orman said. “People always ask me, ‘How much money do I need to retire?’ And my answer to them is, in all the years I’ve been doing this, ‘I’ve never seen a situation when you didn’t have enough to retire when the time was right.’ You give them hope — you don’t give them, ‘You need X amount of money,’ because then they go, ‘What’s the use?’ And that’s when they go on spending sprees. So an actual financial goal can be a very dangerous thing in my opinion.”
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