Mark Cuban has repeatedly given this simple money advice – and it’s more lucrative to do so now than it has been in over a decade
Billionaire Mark Cuban believes in saving for emergencies. In 2017, Cuban told Vanity Fair, “If you don’t like your job at some point, or you get fired, or you have to move, or something goes wrong, you’re going to need at least minus six months’ income.” And then in 2020, in an interview with Men’s Health, he reinforced his advice on emergency saving: “Once you’re able to save, I was saying six months, now I want you to have a year of expenses saved because there is so much uncertainty with COVID. Then you can start investing and put it into something that can appreciate. (See the best savings account rates you can get here .)
If you want to save now, we have good news: Now is a better time to put that money in a savings account than it has been in years. As Greg McBride, Chief Financial Analyst at Bankrate, recently pointed out: Rates on high-yield savings accounts are sometimes the highest since 2009. Indeed, even if the highest-paying savings accounts don’t paying only around 0.50% at the start of the year, many are now paying more than 2%.
What other pros need to save on how much money to save in an emergency fund
The pros vary in their advice on how much you need in your emergency fund, but almost everyone says you need to have one.
While six months of income is a good rule of thumb, in general the amount you personally need in your emergency fund can vary, says certified financial planner Jesse Carlucci of Arrow Investment Management. “Six months is a good benchmark, but it really depends on your personal situation. Emergency funds should be tailored to your particular situation, as the purpose of the fund is to pay for all of your monthly expenses in the event of an emergency,” he says.
Those who might need more than six months include single-income households, precarious jobs, high career turnover time and poor medical history, says Carlucci. “I recommend a three-month emergency fund for dual-income people with secure jobs and a six-month emergency fund for single-income households or those with some uncertainty about their prospects in their position. present,” says Carlucci.
See the best savings account rates you can get here.
Meanwhile, Austin Hon, Certified Financial Planner at Momentum Private Wealth Management, recommends you have at least three months of living expenses, up to 18 months. “Six months seems like the sweet spot. We usually determine the amount of money to hold based on their current role with their employer, their one- or two-earner household, the risk of being laid off, and the taxable balance of their investment account. », explains the Hon.
Certified Financial Planner Holly Donaldson of Holly Donaldson Financial Planning prefers to ask people how long it would take them to find a new job if they lost theirs today. “Normally the answer is between two and four weeks for healthcare workers and nine months for business executives. Whatever the answer, then I would suggest having as many expenses, not necessarily income, in the emergency fund,” Donaldson says.
Many experts agree that the amount of your emergency fund should be based on required monthly living expenses, not necessarily monthly income. “The way we calculate this is we take the total amount they spend on monthly bills, debt service and discretionary spending. We assume that saving would stop during a period of unemployment or loss of income and the amount a person needs in their emergency fund depends on how much they need to maintain their lifestyle on a monthly basis says Certified Financial Planner Angela Moore of Modern Money. Education.
Certified Financial Planner Annie McQuiklen of Forever Financial Advisors says discretionary spending such as vacations should not be included in the essential calculation. “I like to see my clients able to cover three months of all expenses or six months of essential expenses. Additionally, I review other sources of emergency cash and recommend that all homeowners have a HELOC in place, just in case it is needed. The time to qualify for this is before the emergency happens, you don’t want to do it after you lose your job,” says McQuiklen. And if you have a HELOC in place, your emergency fund amount may be lower.
See the best savings account rates you can get here.
The trick, Hon says, is finding the balance between having enough money set aside to eliminate the mental stress of job loss, while putting every dollar to work. “Having a cash reserve gives you options if you need them,” says Hon.
Certified Financial Planner Elaine King of the Family and Money Matters Institute says that while six months may be okay right now, the pandemic has shown us that cash [savings] for 12 months is better. “Because volatility can lead to disruptions in your work, your business, and also opportunities,” King says.
Some experts also recommend having extra reserves to cover foreseeable emergencies like car repairs, household repairs, or medical expenses. “These items are not an if, but a when, and they should be saved separately from emergency cash reserves,” says Certified Financial Planner James Kinney of Financial Pathways.
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