Suze Orman Says This Is a Crucial Step to Saving for Emergencies

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KEY POINTS

  • An emergency fund can help you avoid debt or other financial disasters.
  • It can be difficult to save enough for emergencies, though.
  • Finance expert Suze Orman says automatic transfers are a crucial step to successfully building your emergency fund.

Make sure you're prepared for whatever life sends your way by following this Suze Orman advice.

It is very important to have several months' worth of living expenses saved for emergencies. With money set aside in case of a loss of income or unexpected surprise costs, you can avoid credit card debt or more serious financial disasters such as car repossession or foreclosure if you can't pay your car loan bill or mortgage bill.

Unfortunately, it can be hard to put so much money into a high-yield savings account as doing so requires making sacrifices and living on a tighter budget. To help ensure you're actually able to amass the emergency fund you need, finance expert Suze Orman also has another tip you should consider following.

Suze Orman says this is essential to building your emergency fund

According to Orman, there's a "crucial step" you must take in order to be successful at building up your emergency savings. So, what is that step?

"Set up an automatic monthly transfer from your checking account into your savings account," Orman advised. "You must remove yourself from the equation. We all have good intentions, but often can’t follow through on our intentions. By setting up automated deposits into your savings account you are setting yourself up for success."

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To set up an automated monthly transfer, you would need to open up a savings account that is specifically earmarked for emergencies. Orman recommends giving this account a name, such as "My Safety Net," so you are less likely to withdraw from it for non-essential expenses. Then, you would need to decide how much you can afford to transfer to it each month and arrange to have that amount of money taken directly from your checking account and put right into savings.

Orman believes by making this move, you're setting yourself up for success because saving for emergencies will be the default. You don't have to actually follow through on your plans to move the money over instead of spending it -- it will happen without any extra effort on your part. And, in fact, you would have to go through a lot of trouble to cancel the automated transfer if you didn't want it to happen, which most people simply won't do.

Should you listen to Suze Orman?

Orman's advice on automating your emergency savings is a great tip. In fact, you should not only set up automatic transfers into a high-yield savings account but you should also consider automating as much of your financial life as possible. Specifically, you may want to automate retirement savings and bill payment as well.

It can simply be too hard to make sacrifices consistently every single month to set yourself up for a more secure future if you force yourself to always have to make a choice. By taking that choice out of your hands and making saving the default, you should be able to more easily amass the emergency savings and other funds you need to build wealth and live a life free of money worries. It is well worth taking the time to set up those automatic transfers in order to make this possible.

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