3 Months of Living Expenses Isn’t Enough to Fund Your Emergency Account, Expert Says
Orman rejects 3-6 months minimum
It is a universal consensus among financial experts that the minimum one needs to have in an emergency account is the living expenses required for 3-6 months. However, Suze Orman, a financial expert and a onetime CNBC television host, has a divergent opinion.
While addressing a question at the 2017 emerge Americas conference on the appropriate amount to have in an emergency fund, Orman stated that those who hold such opinion that 3-6 months worth of living expenses is the ideal minimum range are not realistic. Orman expressly said that 3-6 months worth of living expenses is nowhere near sufficient to provide financial security.
The financial expert raised several issues and painted several scenarios to drive home her point. One of such questions was inquiring into what the audience felt will happen if they lose their current jobs and remain unemployed for a whole year or encounter unforeseen medical emergencies.
Orman stressed her point that different unforeseen incidents could happen which would take away all savings and she thus concluded that it is more advisable to have a minimum of eight to twelve months worth of living expenses in an emergency fund. She further emphasized that one needs to be assured of his/her security when such unforeseen circumstances come up.
Orman suggests 8-12 months minimum
While still addressing the participants at the conference, Orman called to the remembrance of the audience their situations during the financial chaos in 2007 caused by the Great Recession. She reminded them that a lot of people lost their jobs and everything they had. Orman added that there were some of them who had gotten involved in tech start-ups but the recession caused their start-ups to fail.
She further mentioned that the sole reason why those things happened was the fact that people didn’t have spare capital to use as an investment and no one was interested in IPO since the market value kept declining and there was nothing to do. She further reminded them that it took several people more than three to six months to get employment after the great recession.
Orman emphatically stated that the issue goes beyond the economy as sickness, accident or any crazy occurrence can arise, and the only way to handle any such incident is to secure one’s self. She noted that the only way to ensure true financial security at all times is to have a formidable emergency fund built up with a minimum of eight to twelve months cost of living expenses. Reiterating her previous points, Orman finally noted that there is a need to have enough money in one’s bank account to attain this security and no one should be dependent on a credit card.
How to increase savings
Based on Orman’s suggestions, media outlets have highlighted that a recently conducted survey indicates that only 39 percent of Americans have sufficient funds to cover an emergency of about $1,000. This result suggests that a lot of Americans still have insufficient emergency funds.
Experts have suggested that different things that can be done to build up this fund. One of such is a budget re-evaluation and making stern decisions about what portion of a budget to use as additional savings or investment. Experts maintain that it is best to put away money very early to enjoy all the benefits and advantages accruing to compound interest. Compound interest directly implies that a little sum invested will end up becoming a whole lot of money sometimes later.
A media outlet records that there are different viable ways to plan a budget and still have enough to put away in an emergency fund. One of such techniques is by tracking expenses to determine costs and ultimately detecting what all the money made is being used for.
Expense tracking requires that you record all purchases made. One other means closely similar to expense tracking is writing out a list before you go shopping so you know just exactly what you need and you do not end up spending on unnecessary items.
Another exciting method developed by David, the founder of Zero Days Finance is to select a day of the week where you do not spend money on anything at all including coffee and groceries. One other way to increase savings is by cutting out convenience such as placing orders for takeouts and taking taxis regularly.
More in Financial Advisor
WorldFirst Mysteriously Cuts Ties With Amazon Amid Trade War Fears
Jeff Bezos currently holds the crown for being the richest man in the entire world. It may be an impressive achievement but...August 19, 2019
$10 Million Gone in Two Years? Only Speidi Can Blow Through Cash Like This
MTV’s The Hills made stars out of a number of LA young adults, but Heidi Montag and Spencer Pratt might just...August 19, 2019
Bragg Products Just Won New Investors, And Katy Perry is Firmly in the Mix
Who doesn’t know of Bragg products? The company, in line with its founder’s vision, advocates for healthy living with its wide...August 19, 2019
You Won’t Believe Why Bill Gates Spent $30 million to Acquire This Peculiar Book
Heard of the Codex Leicester? It is pages upon pages of writings and sketches of the great enigma that is Leonardo...August 19, 2019
Neil Armstrong’s Personal Belongings Hit Auction Houses, Reportedly, Without His Wife’s Consent
Who doesn’t know of Neil Alden Armstrong? In 1969, the astronaut made history by becoming the first man to set foot...August 19, 2019
L’Oreal Capitalizes on China’s Growing luxury Market Amid Economic Slowdown
The trade war between the U.S. and China has taken a toll on businesses in both countries, but there is one...August 19, 2019
Kim Kardashian is Serving Some Serious Financial Advice, And We All Need to Take Note
Thanks to Vogue, Kim Kardashian’s fans have been able to explore the reality star’s Hidden Hills home, where she lives with...August 19, 2019
From Reality TV to Law School: Kim Kardashian’s Career Switch Will Leave You Feeling Inspired
The O. J. Simpson case thrust the Kardashian family into the limelight, sparking a chain of events that would culminate in...August 19, 2019
Stocks in Europe Close Lower As a Result Of Increasing Fears About Global Growth
European stocks last week Friday performed below expectations. The stocks closed lower owing to the release of weaker-than-projected data which increased...August 19, 2019