Suze Orman Says This One Thing Is the 'Biggest Favor' You Can Do for Yourself

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KEY POINTS

  • We may or may not see a recession in 2023; employment numbers suggest we're not quite there yet.
  • Recession or not, you could incur an expensive bill you haven't planned for -- this is what your emergency fund is for.
  • Consider automating your savings, and even increasing your income, if your emergency fund balance isn't where you want it to be.

And she's right, too.

If you're worried about the state of the economy lately, you're certainly not alone. So many big names in the economics and finance space have predicted a 2023 recession. So far, though, employment is holding steady and inflation was still over 6% as of the most recent Consumer Price Index Summary report, suggesting that recession worries may not be strongly warranted, at least at this point.

Nevertheless, your personal finances are separate from the economy as a whole, so it's important to keep your own situation in mind at all times and let it inform your money management. For example, we need not be in a recession for your car to need an expensive repair that you'll have to pay for.

To that end, finance guru Suze Orman recently took to Twitter to advocate for "the biggest favor you will do for yourself right now." What's the favor? Making emergency savings a priority for you, immediately. Here's why she's right about emergency funds.

What can an emergency fund do for you?

As someone who lived paycheck to paycheck for years, and was often forced to resort to credit cards to cover unplanned expenses, I am a big fan of emergency funds. It's a tremendous relief to be able to fix a problem using money from savings and knowing that you won't be paying interest on what you spend. Suze Orman likes emergency funds too, and in fact, recently upgraded her recommendation for how much you should keep in one. Orman used to advocate for three to six months' worth of living expenses, but now recommends saving enough for at least eight months or even up to a year.

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While this may seem excessive, think about all an emergency fund can do for you. Ideally, it's money you only use when you can't cover an expense from your regular paycheck. So sure, this could be an expensive car or home repair (or even your auto insurance or homeowners insurance deductible, if your insurer will pick up the bulk of the cost). But this might also be a medical expense or unexpected necessary purchase, like a home appliance.

Most importantly, your emergency fund could come to your rescue if you get laid off from your job. There have been a few rounds of layoffs from big tech companies recently, and you might be worried about your own employment situation. Sometimes, we don't get much of a warning that a job loss is looming -- think about the many thousands of Americans who found themselves out of work almost three years ago as a result of COVID-19.

How can you prioritize saving?

If your emergency fund isn't quite where you'd like it, you might be having trouble saving due to not having much excess income. This is a boat many people are in, and while every little bit helps, it's certainly frustrating to have an emergency savings goal of $10,000 and only be able to put aside $100 a month in your savings account. At this rate, it would take you 100 months (or more than eight years) to reach that goal.

If you have space to cut some nonessential spending, that's always a good move. But note that if you remove every fun thing from your life, you will quickly come to resent it. I recommend increasing your income, if possible, and making any extra money you bring home the cornerstone of your emergency fund. That money isn't already dedicated to your bills, so use it to its full advantage.

You can try an emergency fund calculator to see what a good personal savings goal might be based on your monthly bills. And consider setting up automatic transfers from your checking account to your savings, perhaps to coincide with when you get paid. That way, the money moves over before you have a chance to spend it (or forget that you intended to save it).

Do this favor for future you

Even if you can only save a little at a time, you're still doing something great for your future self. Suze Orman is absolutely right to say that prioritizing saving for an emergency is the biggest favor you can do for yourself.

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4.50/5 Circle with letter I in it. Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
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APY: 4.25%

Rate info Circle with letter I in it. 4.25% annual percentage yield as of July 24, 2024

APY: 5.31%

Rate info Circle with letter I in it. 5.31% annual percentage yield (APY) is accurate as of 7/11/2024 and subject to change at the Bank’s discretion. Minimum deposit required to open an account is $500 and a minimum balance of $0.01 is required to earn the advertised APY.

Min. to earn APY: $1

Min. to earn APY: $500 to open, $0.01 for max APY

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