Suze Orman’s got an ‘attainable’ new savings goal. It can start with just $100.

Indeed, she says you need one emergency fund that takes care of known expenses and one for unknown expenses. “There are two [funds] and people need to have the mindset for two [funds] because you first have to conquer the one for an emergency that you do not know. After that, then you can start working on the known possibilities, as long as you’re already out of credit card debt,” says Orman. Here’s how that might work. 

Suze Orman’s “known” emergency fund

Firstly, the “known” emergency fund is the one you’re probably familiar with, and it will have 8-12 months of essential expenses in it. “You should be planning that you’re gonna get sick and not be able to work for 8 months. How are you going to pay expenses that you already know you’re going to have to pay? They’re planned. They’re your rent, your phone bills, insurance premiums and debt payments that hopefully you’re in a situation where if you got sick and laid off, you’d be able to pay them for 8-12 months,” says Orman. 

Why 8-12 months of expenses? In 2008, Orman says she learned that it takes about 8 months, or possibly 12 months, to get a new job during a crisis. “The most recent testing of a true collapse in the economy was in 2008 and on average it took 8 months for somebody to get another job. Then we had the pandemic and what did we learn about that? We had enough money to last during the pandemic because the government was subsidizing you in every possible way and giving you every incentive not to work or ever look for a job again. But then we had the long haulers, which is something we hadn’t dealt with before, when somebody remains ill for months to a year and they can’t work,” says Orman. 

The 8-12 months number is also personal for Orman. “They found a tumor in me almost 3 years ago that I’m sure everybody knows about. If I hadn’t had the money that I had, I don’t know what I would’ve done. There’s no way I could’ve worked for 2 years at all. So you have to plan for at least 8 months to 1 year,” says Orman.

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Suze Orman’s “unknown” emergency fund

Secondly, you need an emergency fund for “unknown” expenses — which you save on top of the 8-12 months of expenses in the “known” fund. This is for unexpected emergencies like, say, an unexpected home repair.

The good news? The account doesn’t need to be hefty — in fact, Orman says just $100 dollars can actually make a difference. “Your car breaks down, your refrigerator breaks. It’s the little $200, $300, $400 dollar events that happen that you’ve got to solve today and need the money for because if you don’t have it, this is what happens; you put $200 on your credit card at a time when the Fed has been raising rates and you get a bill at the end of the month that entices you to only pay $20 because it’s the minimum payment and before you know it, you’re in credit card debt and you’re maxed out,” says Orman. 

That sort of situation becomes avoidable for someone who has an extra $100 or $200 tucked away and Orman says: “It’s attainable for people. When you tell people they need 8 to 12 months of a fund it freaks them out, so there’s a vital difference that people have to get in their head between an emergency savings account that you can’t plan for in terms of what that emergency is going to be.”

What to do if you feel like you can’t save this much

Does this all sound overwhelming?  Start small. “Something is better than nothing. Work on the unexpected emergency account and get out of credit card debt. Then you’ll have the money that you were paying the credit cards to go towards your must-pay account,” Orman says. 

Something else to keep in mind when considering saving for emergencies is that rates are still relatively high in a savings account or money market fund. “At least you’re making money on that money. When that wasn’t true, there was no financial incentive for people to save because they were earning zero,” says Orman. (You can see some of the highest-paying savings accounts here.)

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