Why It’s More Important Than Ever To Have an Emergency Fund – Technologist

When things are going great financially, we hardly ever think about putting money away, but recent retail door closings at Party City, as well as Big Lots and the latest data from the U.S. job market, indicate that things may be getting harder out there.

“People are finding that if their employer does go out of business, finding the next job is harder,” says money expert Clark Howard. “And it’s not just a thing that you feel, it’s a fact.”

To Clark’s point, recent reports show that the job market may be showing some cracks in its veneer. Consider these data points from November 2024:

• At 4.2%, the unemployment rate experienced a slight bump, rising 0.5% compared to the same month a year ago. 
• Long-term unemployment (defined as a job seeker being out of work for 27 weeks or more) is starting to tick upward as well. The figure was 22.9% in October and increased to 23.2% in November.

Is there trouble in job land? There might be, which is why the time-tested advice from Clark on creating a stash of cash for emergencies rings truer than ever today.

“Most of us, even if we have a lifestyle where we could do it, don’t build up that rainy day money,” says Clark. “But when I see stats like [the ones above] it means that you’ve got to prepare for how you’re going to pay your bills if that event happened to you.”

Why You Need an Emergency Fund

Clark says you need an emergency fund because we simply can’t predict what the future holds.

“You need to be really, really thinking about having that good rainy day account, being prepared for a period of time for an ‘oops’ in your life,” Clark says. “Oops come in all different shapes and styles.”

For example, you could be traveling to work and hit a pothole that flattens your back tire. You can get a good tire — but it’s going to cost you. Or your refrigerator could stop working. Or your furnace (Oh no!) could go out. 

In an instant, you could find yourself having to get out of debt because you had to spend money you didn’t have.

How To Create an Emergency Fund

The general steps to creating an emergency fund begin with learning how to save money.

It’s not a fast process, but one that involves slowly building up your savings week by week, month by month. You can even start by putting aside $10 per paycheck. The key is to start.

“Don’t try to do it all at once because if you do, you’re just going to get discouraged, and you’ll just give up,” says Clark.

“Nothing happens in a day,” Clark says. “It’s all about changing your perceptions and habits. So if you’ve got nothing, you should work toward a goal of having a month’s living costs saved. When you get to that month, then you worry about the second month and on like that.”

Read our comprehensive guide on how to create an emergency fund, which will tell you how much you should aim to save.

How Big Should My Emergency Fund Be?

“I know you’ll hear that you should have six months in living costs saved, but if you’ve got zero pennies saved, you’re like, ‘Well, why would I even bother?’” says Clark.

Several factors will help you determine how big your emergency fund should be. Some questions you’ll want to answer are:

• What are my financial goals?
• How much debt do I owe?
• What are my monthly financial obligations?
• What expenses can I cut?

The first step in implementing the answers to some of those questions is to create a budget, which will allow you to track your expenses and give you a clear picture of your finances.

Read our in-depth guide on how much money you need in your emergency fund.

Final Thoughts

The job market can experience a downturn at any moment due to a natural disaster or another huge event. In terms of history, the unemployment rate is still low. But if your employer goes out of business or downsizes and you find yourself without a job, it may still take months before you find you land your next role.

Insulate yourself the best you can by having an emergency fund.

“The day you resolve that you’re going to start building up that cushion, that reserve, is the day that you start reducing the anxiety in your life and creating more security in that life,” says Clark.

The money expert is also a big fan of keeping some cash on hand. Why? Because out-of-the-ordinary expenditures can hit at any time. Be ready!

The post Why It’s More Important Than Ever To Have an Emergency Fund appeared first on Clark Howard.