How Much Emergency Savings Do You Need? Here's What Mark Cuban Says
- Billionaire Mark Cuban hasn't always been wealthy and has experienced his share of financial stress.
- He thinks the average worker should have plenty of cash on hand for a rainy day.
It may be a higher number than what you were expecting.
No matter your age, family situation, income, or line of work, it's important to have money in your savings account for emergencies. You never know when you might get stuck with a large car repair, home repair, or medical bill that your regular paycheck can't cover. Plus, it's always good to be prepared for a period of job loss, especially since unemployment benefits can't be expected to replace your paycheck in full.
Billionaire Mark Cuban is a firm believer that emergency savings are an important thing to have. But how much money do you need to stash in the bank? Cuban has changed his tune on that matter over time, and now, he thinks a year's worth of essential living costs is a good target to aim for.
How much emergency savings should you have?
You might think there's no such thing as having too much cash in the bank. But actually, there is.
The money you keep in a savings account isn't going to earn a lot of interest. That especially holds true these days, with interest rates sitting at well below 1% even on high-yield savings accounts.
But even during periods when banks are paying more generously, you'll still limit your ability to grow wealth if you keep all of your money in a savings account. Rather, you should keep the sum you need for emergencies in the bank, but then invest the rest of your money, whether in an IRA or a traditional brokerage account.
Now Cuban thinks the average consumer should save enough money to cover a year of expenses, and then start investing. But he didn't always feel that way.
Prior to the pandemic, Cuban typically recommended saving enough money to cover six months' worth of expenses. But in the wake of the mass unemployment crisis that ensued in early 2020, he now suggests saving enough to cover a full year of bills.
For some people, that's a milestone that could take years to reach, though. If you're starting out with little to nothing in your emergency fund, your best bet is to simply pump up your savings as quickly as you can, but with the understanding that it might take a few years to amass enough cash to cover a full 12 months of bills.
Can you get away with saving less?
You may not relish the idea of having to keep 12 months' worth of living costs in the bank earning minimal interest. Depending on your situation, a six-month emergency fund may suffice.
Let's say you and your spouse have a steady job, and you're able to live comfortably on 75% of your combined income. In that case, you may not need 12 months' worth of expenses in the bank, because if one of you were to lose your job, chances are, between budget cuts, unemployment benefits, and your remaining paycheck, you'd get by. But if you're the sole breadwinner in your household and have several dependents, it could pay to follow Cuban's advice.
Ultimately, though, make it a priority to have some amount of money earmarked for emergencies. The pandemic caught a lot of people off guard and caused people without savings a world of upheaval. If you want to avoid a similar fate the next time a crisis arises, do yourself a favor and build yourself a solid emergency fund.
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