Believe it or not, you can arrange similar help yourself.
- Due to inflation and other factors, many people faced financial challenges this year.
- One smart move on your part can help you manage something like this.
- Having an emergency fund can help you deal with setbacks such as job loss or an unexpected bill.
It’s more than fair to say that 2022 was a tough year for many. Since the beginning of the year, although today, inflation is rampant. And it has caused many people to fail. They can range from piling up credit card debt to stalling on IRA or 401(k) plan contributions.
Meanwhile, a recent Fidelity study found that 44% of people who experienced a financial setback in the past year had to dip into their emergency funds to get through it. But it’s also a very good thing that these people had savings to draw on when needed. So if you’re lacking in the emergency savings department, consider this your firm but friendly wake-up call to build up some cash reserves before your finances take a turn for the worse.
The protection you need
Maybe you had a rough go in 2022. Or maybe you made it through the year but are worried about 2023 given all the recent recession warnings.
You should know that the best way to prepare for a financial crisis, whether national or personal, is to have money in savings that you can access in a pinch. If you don’t have an emergency fund or a full fund, make building that safety net your top priority in 2023.
How much money should you set aside for emergencies? It depends a lot on your situation.
Some experts will tell you that you can sock away enough cash to cover three to six months of major bills. Others will tell you that you need nine to 12 months longer.
To see which end of that spectrum you should aim for, think about your life. If you’re tight-fisted and only have yourself to worry about, you might as well put your socks in the bank for three months and call it a day. But if you’re married with two kids and your spouse isn’t working, you can aim higher.
You may also want to consider increasing your personal cash reserves in case a recession hits in 2023 and causes job losses or reduced hours. Remember that even if you are able to collect unemployment benefits because you lost your job, they will replace a portion of your missing wages. So the more you can increase your savings, the better.
Don’t leave yourself vulnerable
You never know when you might experience a financial setback. But if you want a way to relieve yourself, it’s worth pushing money into your savings account so it’s there when you need it.
And if you’re not sure how much cash to sock away, err on the side of saving more. It’s better to overfund your savings a little and have extra protection than to do the opposite and fall short when a financial emergency strikes.
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