For Suze Orman, This Is Why Your Emergency Fund Should Be a Top Priority

If you were facing a surprise bill amounting to $400, would you be able to pay it without going into debt? Two-thirds of Americans couldn't, as a report from SecureSave found earlier this year. Having emergency savings is your cushion against everything from an unexpected expense like a car repair bill to a more severe issue like a job layoff.

Financial guru Suze Orman is a big advocate for emergency savings, and for good reason. In a recent tweet, she noted that "recessions are part of our economy," so despite the currently low unemployment rates, it's important to prioritize building an emergency fund sufficient to cover a full year's worth of bills. Let's take a look at why Orman recommends saving so much in your emergency fund and why we can't count on low unemployment forever.

Really, a one-year emergency fund?

The commonly held wisdom has long been that you should have three to six months' worth of expenses saved up for emergencies. The idea is that this amount should be enough to cover many common financial emergencies (like a car repair, or maybe your homeowners insurance deductible in the event of a covered peril, or a surprise medical bill that your health insurance doesn't cover in full). It could also get you through a few months of your regular bills if you were to lose your job. But in the wake of the COVID-19 pandemic, Orman has been recommending saving a full year's worth of expenses.

When the world shut down in spring 2020, a lot of people lost their jobs, and the unemployment insurance system through individual states was slammed. A lot of people waited to receive benefits, and while we did get stimulus payments a few times during those earlier days of the health crisis, many people struggled to cover their regular expenses and had to go into debt to do so. Having a bigger emergency fund can help you weather a more extreme situation like a once-in-a-century pandemic.

Economic downturns are a matter of when, not if

Orman is also correct to point out that in our economy, recessions aren't uncommon. A recession is a period of economic decline, and during one, job losses are more common as companies lay off employees in an attempt to save money and shore up their finances.

Having cash savings in a high-yield savings account can help you bridge the gap between your unemployment pay and how much your bills are, saving you from needing to rely on credit cards or other borrowed money. With that in mind, here are a few ways you can build more savings for a rainy day.

A few tips for building emergency savings

We've all heard from certain finance gurus who insist that the reason you don't have as much money in savings as you need is because you spend too much on fancy coffee. While many people do spend more than is maybe advisable on small expenses like this, the fact of the matter is that your salary (or lack thereof) is likely a bigger problem. Yes, cut back on some of your discretionary spending -- a good way to do this is to build a budget and see where all your money is going, then make changes. But cutting all the fun spending out of your life is a way to make you resent your budget in a hurry.

A more effective technique for building savings is to increase your income. This could be by getting a raise at work (never a guarantee) or by changing jobs altogether (often a better way to get a higher salary). Or you might consider adding a side hustle if you have a little time. There are many ways to approach this, and you could take on casual gig work like driving for a ride-hailing company, or you could find a more robust role if you have marketable skills like writing or graphic design. The great thing about side hustle money is that, less taxes, you can use it for whatever you want because it's not already earmarked for your regular bills.

Another tip to build savings more easily is to automate the process. If you struggle to actually move the money from your checking account to your savings, this can really help. Schedule an automatic transfer from one account to the other for when you get paid, and the money will move over without giving you the chance to spend it.

Financial emergencies and recessions are an unfortunate part of life, but having a robust emergency fund can help you cope. Make your emergency fund a top priority and rely on the tips above to help.