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She has one short-term goal and one long-term goal to help you build your savings.
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Saving money consistently is one of the most important financial habits. Everyone needs money for emergencies and future expenses. To be successful with putting money in your bank accounts every month, it helps to have savings goals to work toward.
Popular financial advisor Suze Orman shared two savings goals last month. They’re intended to help you prepare for a recession, since that’s a concern in the near future, and get your emergency savings in order. Here’s what she recommends.
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1. Amass savings that can cover you for up to a year
Orman says your long-term goal should be to have an emergency fund that can cover you for a year. While Orman used to recommend an eight-month emergency fund, she raised that recommendation in 2022 due to economic uncertainty and inflation.
To figure out how much you need to save for this goal, add up your essential monthly living expenses. Remember that you’re not using the total amount you spend per month, but the amount you spend on the essentials, like your home, groceries, utilities, and everything else you can’t do without. Take the answer and multiply it by 12.
For example, let’s say your essential bills cost $3,000 per month. You’d need to save $36,000 to amass a 12-month emergency fund like Orman recommends. This obviously doesn’t happen overnight, which is why it’s the long-term goal, and why Orman also provides a short-term goal to help you stay on track.
2. Hustle to increase your savings as much as possible
To build up a 12-month emergency fund, Orman suggests pushing yourself right now on your savings. If you currently have a three-month emergency fund, work hard to get it to four months. Once you have four months of living expenses saved, aim for five, and so on.
It takes time to save a year’s worth of living expenses in your bank accounts. There are a few things you can do to save more quickly:
Make saving money a habit. Figure out how much you can afford to save per month. Then, automate your savings by setting up recurring transfers to your emergency fund account.Look for areas where you can cut costs. You may find that there are bills you could reduce or get rid of entirely. To get stricter about your spending, check out budgeting apps that help you keep better track of where your money goes.Use the right type of savings account for your emergency fund. High-yield savings accounts are the best option, because they offer high interest rates.
Are Suze Orman’s savings goals right for you?
Orman definitely gives readers the right idea about saving for emergencies. Every adult needs a stout emergency fund, as you never know when you’ll need extra cash. If you experience a job loss, you could spend months without income, so it’s important to be prepared.
A 12-month emergency fund is on the high side. The standard recommendation is between three and six months of emergency savings. However, Orman isn’t the only expert who recommends more than that. There are others, like Ramit Sethi, who also believe that 12 months is the way to go. The exact amount is up to you, but more money does provide more security.
The advice to hustle hard so you can boost your savings is also sound. If your emergency fund isn’t where you want it to be, that should be a financial priority. There may be a recession this year, and if so, a sufficient emergency fund is a key part of being ready. Work on your savings now for more peace of mind later.
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