Can your bank account handle financial emergencies? Unexpected expenses can force you to rely on credit cards, which can lead to debt if you don’t have enough savings to cover things such as car repair, medical bills, home repair, job loss and more. That’s why the best time to build an emergency savings fund is right now, according to personal finance expert Suze Orman.
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In an interview with CNBC, Orman said having an emergency savings account is “absolutely vital.” In another interview, the bestselling author and wealth advisor said, “The one thing that every single person needs is an emergency savings account. I’ve been saying that for over 40 years now, and it’s been getting to be more and more of a problem.”
Orman continues to stress that building emergency savings is an urgent necessity, especially as economic uncertainty rises. No matter what you have in store for your short-term or long-term savings planning, it’s a good idea to have a stash of cash that is easily accessible for all things unforeseeable.
Here’s why the financial guru says everyone needs an emergency savings account.
Orman has long preached the vital importance of saving for emergencies. However, with today’s rocky economy, and a new administration entering the White House, having a cash cushion to cover costs is more essential than ever. As Orman explained, “We’re living in a very precarious time right now.”
With savings drained, debt burdens growing and costs inflating rapidly, if you don’t have emergency reserves, you might have reason to worry. Your checking account can only go so far and if you experience a medical emergency, only so much is covered by insurance.
Instead of racking up hefty credit card bills with high interest rates, you can put your emergency fund toward unexpected expenses. An emergency fund serves as indispensable financial protection when the unexpected occurs. Having three to six months’ worth of living expenses set aside can keep you afloat during periods of income loss, accidents, illnesses or other disruptions.
Orman warns that people without adequate emergency savings funds “have got to be scared to death.”
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Financial advisor at The Options Lady, Laurie Itkin agrees that emergency savings have become urgently important, given steep inflation and waves of layoffs. Those without cash reserves may have no choice but to put regular expenses on high-interest credit cards if paychecks suddenly cease, and carrying high-rate debt destroys finances.
Even small, regular monthly contributions to a high-yield savings account or money market account at your preferred bank or credit union can build emergency funds over time. As Orman advised, “All you need is $5, $10 or $20 a week.”
These savings can provide vital breathing room to handle costs if you face a crisis like job loss or disability. It may seem counterintuitive to try and predict the future but planning for the unexpected helps alleviate any financial shocks you may run into down the road.
For regions prone to natural disasters like hurricanes or floods, Joe DeBello, a financial advisor and the vice president at CAPTRUST, recommended designating special savings just for weather emergencies.
Per DeBello, calculate your full living costs including insurance deductibles, food, shelter, clothing, gas and other essentials. Determine a monthly savings goal that’s feasible for you to set aside in a dedicated emergency disaster account.
Even modest savings here can prevent desperate reliance on retirement withdrawals or high-interest debt.
All financial experts align with Orman that establishing emergency savings must be an urgent top priority. What you put in your savings now for a rainy day turns into an umbrella later.
Orman stressed, “I don’t care if you have credit card debt, I don’t care if you have student loan debt — I don’t care what debt you have. You have to have that emergency [savings] account.”
Building even a small starter emergency fund creates stability, options and peace of mind. Take Orman’s over-40-years-strong advice to heart: Emergency savings funds are a non-negotiable necessity in every financial plan.
Laura Beck contributed to the reporting for this article.
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This article originally appeared on GOBankingRates.com: Suze Orman: 3 Reasons Everyone Needs an Emergency Savings Account
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