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Learning about the smartest money moves that will help you build and preserve your wealth can seem complicated. Sometimes becoming familiar with words and concepts feels like hearing the steady voice of Charlie Brown’s teacher in your head. But what if the No. 1 lesson you should learn about your money is actually incredibly simple? According to personal finance expert Suze Orman, it’s probably a lesson you’ve heard at least once: Plan for the “what ifs.”
What if you experience sudden job loss or a health crisis? Will you be able to support yourself financially? “What ifs” are life events that can derail even the best-laid plans — and if you don’t prepare for them with a strong emergency fund, Orman said you’re leaving yourself vulnerable to financial ruin. One of the biggest lessons you can learn about your money is to save and prepare yourself for the “what ifs.”
in one of its episodes podcastOrman is torn as to why she places so much emphasis on this lesson.
Don’t think you’re safe because you have a good job
Let’s say you’ve got a great job. You are earning good money, and you will get a lot of benefits. You are a homeowner and your car is also in good condition. Overall, you are living the American dream. Getting a regular salary makes you feel secure. But then this happens: You get fired from your job. Or, if you were one of the many federal employees affected by the recent government shutdown, you may be furloughed or forced to work without pay.
The plight of government workers during that shutdown gives urgency to Orman’s point. He cautioned that the bottom could drop out of your world faster than you think – and for reasons beyond your control.
“And now you don’t know what to do, and then suddenly you feel like you have to go to the food bank, even though you have a great job,” she said. “And once again, we go back to life’s lessons, and when it comes to your money, what’s the biggest lesson in life, if you ask me? It’s to plan for the future of life.”
Plan today to protect tomorrow
Planning for those “what ifs” involves a simple but powerful task: Orman wants you to save eight to 12 months’ worth of expenses in an emergency fund.
She knows you have a lot of other financial goals competing for your attention — buying a house, saving for a vacation, or redecorating your place. You may want to grow the money you have saved for emergencies in the stock market.
Yet, that plan – or, rather, inaction – assumes that tomorrow will look exactly like today. The paycheck you rely on to achieve those goals may not be there tomorrow. And what will tomorrow look like if you haven’t saved enough to cover your basic expenses?
That’s why Orman calls building an emergency fund a matter of planning today to protect tomorrow. Going on vacation is fun, but your Instagram Reels won’t pay your rent. Jumping on a new investment can be exciting, but it won’t fill your needs if you can’t afford groceries.
“This is money that you need in a situation where you can’t pay your bills that need to be paid,” she said.
Investing in the Known vs. the Unknown
One of Orman’s listeners learned this lesson the hard way. She told of an email she had received from a man who admitted that he had invested all the money that went into his emergency fund into Palantir.
“Just so you all know, by the way, everyone, Palantir went from $203 a share to about $169 a share in a day or two, and he put all his money into it?” Orman said.
It turned out that he really needed that robust emergency fund: He was a federal employee and had lost his job. By his example, Orman learned an important lesson: You must balance investing in known entities like the stock market with unknowns, like the possibility that you might get into a car accident or become seriously ill. These possibilities require you to prioritize saving for an emergency fund along with growing your money through investments.
He said, “All kinds of things can happen, and yet you never believe it’s going to happen to you.” “And just when you don’t believe it’s going to happen to you, chances are that right then and there it’s going to happen to you.”
Learning the Lessons Money Has to Teach You
This may seem hopeless, but your goal should not be to become completely hopeless and hopeless. Your current financial situation – as well as your planning habits – teaches you a lot about what you value and where you need to grow. Building your emergency fund to prepare for those big “what ifs” shows that you’ve learned to prioritize your safety and stability.
“I don’t care how much you want to go on vacations or you want massages or you want to get your nails done every week or whatever, you have to make that your number one priority,” she said. “You need to make it your first priority to have an emergency fund of eight to 12 months.”