Suze Orman Changed Her Mind on Emergency Savings. You Should, Too?

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  • The pandemic was a wakeup call for a lot of people.
  • In light of the economic crisis it spurred, you may want to rethink your approach to emergency savings.
  • Suze Orman now recommends having money to cover at least eight months' worth of expenses.

You may need a larger safety net than you think.

Life has a way of costing more than expected. Your heating system could break down in the middle of winter, or your car could stop running and require a $1,000 repair. Or, you could fall ill and be forced into an extended break from work -- and have to cover a pile of bills to boot.

That's why it's so important to have a solid emergency fund. Without a robust savings account balance, you might easily land in debt or suffer other unfavorable consequences in the event of a financial shock.

But how large does your emergency fund need to be? If you ask financial guru Suze Orman, you should have enough money in savings to cover eight to 12 months of living expenses.

But Orman didn't always feel that way. Like many other financial experts, she used to advocate saving enough to cover three to six months of essential expenses. But she's since changed her tune, and you may want to consider doing the same.

Why it could pay to increase your emergency fund

If you're sitting on enough money in the bank to cover six months of essential expenses, give yourself a nice amount of credit for hitting that milestone. Saving up enough to cover half a year's worth of bills is no easy feat. And given that there are many Americans with no money in savings, that's something to be proud of.

But you may want to consider increasing your emergency savings for even better protection. Suze Orman used to think that having enough cash for three to six months' worth of bills was enough. But then the pandemic hit, and it spurred the worst unemployment crisis many of us have ever seen.

That crisis wasn't short-lived, either. The national unemployment rate hit a record high in April of 2020. But things were still so bad in March of 2021 that lawmakers moved forward with the American Rescue Plan, a massive spending bill that boosted unemployment benefits and put a third round of stimulus checks into Americans' bank accounts.

That crisis was a major wakeup call. And it made many people realize just how vulnerable they were in the face of a missing paycheck.

And so now, Orman advocates for more than just three to six months' worth of bills in the bank. Instead, she encourages workers to aim higher. Having eight to 12 months' worth of expenses on hand could spell the difference between riding out an extended period of joblessness or not. It could also, in the event of an illness or injury, allow for more recovery time without having to worry about paying bills.

How to boost your cash reserves

If your emergency fund could use some work, the idea of boosting it may seem overwhelming. After all, you may remember working a second job and cutting back substantially on leisure spending to build your initial cash reserves. And you may not be eager to go through that again.

The good news is that if you have a decent cushion already, you don't have to go to those same extremes. Should you cut back on some non-essential spending? Absolutely. Should you consider a light side hustle -- something you can easily manage that doesn't wreak havoc on your schedule? For sure.

But if you're sitting on enough cash to cover a full six months of essential bills, you don't necessarily need to panic over saving more. Instead, you can slowly but steadily work toward that goal so you can truly get the peace of mind you deserve.

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