It’s safe to say that 2022 was a difficult year for many people. Inflation has been out of control since the beginning of the year to the present. And as a result, many people have encountered setbacks. The range of those may have included everything from amassing credit card debt to needing to put a stop to IRA or 401(k) plan payments.
Therefore, if you don’t have any emergency funds, consider this your nice yet firm reminder to start saving money before things become worse financially.
According to a recent Fidelity study, 44% of consumers who had a financial setback in the previous year had to use their emergency reserves to get by. However, it’s also a very good thing that those people have savings they could use when necessary.
Maybe 2022 was difficult for you. Or perhaps you survived the year without incident but are concerned about 2023 in light of the several recent recession forecasts.
How much cash should you keep in reserve for unplanned expenses? It heavily relies on your circumstances.
You should be aware that having money in savings that you can access quickly is the greatest approach to prepare for a financial crisis, whether it be a global or personal one. Make establishing an emergency fund your top priority in 2023 if you don’t already have one, or if it’s insufficient.
Some experts will advise you that it’s okay to put away enough money to pay your critical expenses for three to six months. Others will advise you that you actually need between nine and twelve months’ worth.
Consider your life to choose which end of the range you should pursue. If you’re single and responsible for only yourself, you might be able to stop saving after setting aside three months’ worth of costs. However, if your husband doesn’t work and you have two children, you might want to set greater goals.
You can also think about increasing your own cash reserves in case a recession occurs in 2023 and causes you to lose your job or work fewer hours. Keep in mind that even if you are eligible for unemployment benefits because you lost your job through no fault of your own, they will only partially restore your lost wages. Therefore, the more you can increase your savings, the better. You can never predict when you’ll face a financial setback. However, it pays to put money into your savings account so that it will be there for you when you need it if you want a way to save yourself.
And err on the side of saving more money if you’re unsure of how much to set aside. It is preferable to slightly overfund your savings so that you have additional security than to do the opposite and fall short in the event of a financial catastrophe. You might be losing a lot of money if you’re using the wrong credit or debit card. Our top pick, which has a 0% introductory APR that lasts until 2024, an amazing cash back rate of up to 5%, and miraculously no annual fee, is a favourite of our expert.
- In 2022, 44% of those who had a financial setback received financial assistance. What It Was, in Brief
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