If you follow financial guru Suze Orman, or read financial news it’s likely you’ve seen the big turnaround Suze made this week. If you haven’t here is an excerpt from her article on Oprah.com.
“If you have an unpaid credit card balance and not much saved up in emergency savings, I need you to listen up. My advice has changed.
I want you to only pay the minimum due on your credit card balance, and instead, make it your top priority to build as much of an emergency cash fund as you can.”
Suze goes on to say that she wants you to save 8 months worth of emergency expenses. Remember we’re not talking about your current budget, we’re talking about bare bones living. You wouldn’t be paying for Internet, cable, cell service, etc.
Learn more: 3 Steps To Make An Emergency Fund
Her rationale is that as credit tightens you may end up paying off cards (or paying them down) only to have them closed or the limits cut leaving you with no recourse should you lose your job.
In my opinion, each person or family will have to assess their situation and figure out what works and makes sense for you. If you are in an area or field where layoffs are happening then her advice is definitely spot-on.
Being in a position where we’re relatively secure, paying off debt is still our number one priority. We have a mini emergency fund, and will continue to add to it with snowflakes over the course of the year, but our main focus is on paying off debt, and not incurring more debt by consciously spending what we have.
Learn more: How To Pay Off Debt
Another consideration for me is how much those pesky monthly minimum payments are. Some people report their minimum monthly payment has gone up (one of ours has doubled), so by only paying minimum payments you will have to save extra in your emergency fund.
Learn more: 13 Money-Saving Tips [Infographic]
If the debt you carry is a small amount it may be worth paying it off over the next month or two and then focusing on emergency savings. If you don’t carry debt you may be struggling with how much to save versus how much to put towards retirement and other goals.
The key is to just get started doing something. A good place to start is to figure out what your bare bones living expenses are. You can plan a budget for regular income, and one in case you were to lose your income. This is definitely something to consider doing before you start panicking about how long it will take you to save 8 months of expenses.
Learn more: We Saved $17,000 By Cutting Expenses
You can also start cutting expenses now, so you have more money to save or pay down debt. You may also consider adding more income by taking a 2nd job, selling things you no longer need, or finding some other way to use your skills. I would even consider giving yourself a raise.
Have you changed your financial goals due to the grim financial/unemployment news, or advice like Suze’s?
P.S. Trent at The Simple Dollar also shared his take on Suze’s advice.