Suze Orman: You Need This Much in Your Emergency Fund
Written by
Nicole Spector
Edited by
Ashleigh Ray
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Everyone needs to have an emergency fund. There’s simply no negotiating this. Without one, you’re practically destined to rely on credit cards and risk falling into debt.
All financial experts stress the importance of a nest egg that will cover those inevitable and unexpected expense. However, they may not agree on how much you should have in your fund.
Many experts insist that you have three to six months’ worth of expenses stashed away. Financial guru Suze Orman is not among this crowd.
You’ll Need More Than 3-6 Months’ Worth
You’ve probably heard it before: “three to six months’ of expenses in an emergency fund.” This, in the opinion of Orman, is simply not enough.
“Every family should have an emergency savings account that can cover at least eight months of living expenses,” Orman wrote in a post on Oprah.com.
It Sounds Like a Lot, But It’s For the Best, Especially If You Lose Your Job
Putting aside eight months’ worth of money in an emergency fund may sound like a lot, or even too much, especially if you’ve been adhering to the common advice pushing “three to six months.”
But Orman has a good point. Some emergencies are particularly draining — or, long-lasting.
Consider all the mass layoffs that have been happening over the last year. It’s not just sad or scary to lose your job. It’s potentially a major financial hit, and not just for three to six months.
It Takes Job Seekers an Average of 5 Months To Get a New Position
Back in 2018, a study from the recruitment agency, Randstad US, found that it takes job seekers an average of five months to get a new job. Mind you, that’s just the average; it could take longer.
Consider also that this study was conducted well before the pandemic and the recession that accompanied it. The situation for job seekers could be even worse now.
Javier Serrano, a job seeker interviewed by CNBC last February, told the outlet that their job hunt has been “frustrating and disorienting — finding a new job has never felt this difficult.”
Illness Is Another Potentially Long-Term Emergency To Consider
Should you or someone under your care fall seriously ill, you may need to spend more on unexpected healthcare expenses, and possibly take a prolonged leave from work.
Will this emergency situation expire after three to six months? Maybe, but you can’t know for certain.
This example shows how we just never know for how long an unexpected expense will take its toll. Keeping eight months of easily accessible money (ideally in a high-yield savings account) for an emergency isn’t just playing it safe; it’s playing it smart.
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