With a Recession a Possibility, Here’s How Much Suze Orman Says You Should Have in Your Emergency Fund

This post may contain affiliate links which may compensate us based on your interaction. Please read the disclosures for more information.

The more, the better — but shoot for a specific goal. 

The recession warnings have come thick and fast these last few months — we here at The Ascent have certainly covered our fair share of them. Recessions are a normal occurrence in our economy, but the concern over a potential economic slowdown later in 2023 or possibly 2024 is certainly justified. Right now, there’s plenty of news about layoffs from big tech companies, and a lot of people are understandably worried.

While we may not be able to prevent economic downturns like recessions, it is within our power to prepare for them and be ready should the worst happen. Your best cushion against a recession is an emergency fund, and it’s worth working on yours right now, if you’re able to.

Emergency funds 101

An emergency fund is a stash of cash savings, ready and waiting for an unplanned expense (such as a car repair bill) or a more serious financial hit, like a period of unemployment. As much as we like to think we have some measure of control over our lives, a catastrophe can strike at any time. Having money put aside can help you cope.

It’s really important that your emergency fund savings be readily available to you. This means keeping it in a good high-yield savings account, where it can be easily withdrawn without penalties or fees. If all your money is in a retirement or other brokerage account, you’ll be able to access it, but you’ll incur a tax penalty, or may have to sell stocks at a loss to get your money out. And if you have to tap a retirement fund, you could be hurting your future financial security as well. Financial expert Suze Orman has a prescient recommendation for how much money you should aim to save in your emergency fund in light of a possible recession.

Suze Orman’s perspective

Like many big names in the personal finance world, Orman is a big believer in emergency funds. Orman has changed her recommendation based on the last few years of pandemic-related economic disruption, however. While she used to advocate for saving three to six months’ worth of expenses, she now recommends that Americans have even more savings.

Recently on Twitter, she noted that while your long-term goal should be to eventually save up a year’s worth of expenses (to cover your housing, transportation, healthcare, and other bills), right now, the best move is to just add as much money as possible to that account. If you run your bills through an emergency fund calculator, and find that your usual monthly expenses total $3,000, a year’s expenses for you will be $36,000. That’s a lot of cash savings, but don’t despair if you can’t reach that goal anytime soon. Any amount of money you can put aside can provide you with some cushion against the unexpected.

What should you do?

Orman is certainly right that the more money you can save now, the better off you’ll be in the face of an uncertain economic future. That said, don’t let this recommendation to save for a year of costs stress you out if your savings account is a little light after the last year of inflation we’ve all experienced. Consider cutting some of your discretionary expenses if possible, but it would be even more effective to increase your income.

If your employer is willing to give you a raise, that can help, but getting a side hustle could mean dedicating most or all the extra money you make to your savings. Plus you could add to your resume and have a back-up source of income, both of which are very good side effects of having a side hustle. Try not to worry too much over impending financial uncertainty, but do your best to be prepared for it by padding your emergency fund.

These savings accounts are FDIC insured and could earn you more than 12x your bank

Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. Our picks of the best online savings accounts can earn you more than 12x the national average savings account rate. Click here to uncover the best-in-class picks that landed a spot on our shortlist of the best savings accounts for 2023.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

 Read More