I know this is just a meme, but I think it’s an important clarification: The rule of thumb is ~6 months’ worth of expenses, not salary. It really is important to hold you over in case of sudden job loss, since it takes most people 3-6 months to find a new job (but it doubles as a fund for genuine emergencies too, which can save your ass for stuff like unexpected medical or vet bills).
But unfortunately, lots of people live paycheck to paycheck, so for them, a month’s worth of expenses is the same thing as a month’s salary…
I’m friends with a woman who makes six figures. She’s always broke. She lives in a very expensive part of the country, but she always has to go to every big show. She travels all over the world, at least two major vacations every year plus smaller in country trips. She’s got a bedroom in her (rented) house with no bed, the whole room is for her clothes and jewelry. Blows my mind. No savings. She’s in credit card debt. If she’d just chill for six months she’d be so set.
Sounds like she is enjoying life, but that stops at the credit card debt. Thats just dumb.
0*6=0.
Done. I’m crushing it.
More realistically, 3 months of expenses, not 6 of salary. Maybe go higher from there if you’ve paid off debts and stuff.
It’s unfortunately very difficult to achieve for many, and impossible for some. But if you can, you absolutely should have an emergency fund.
Some people can but don’t, either due to lack of financial education, lack of impulse control, or feeling they have to spend a lot to be happy.
Shit happens in life, from a broken boiler or car to a job loss. If you can, please build an emergency fund.
More realistically, 3 months of expenses, not 6 of salary.
it’s the same picture
This always felt like banker advice to me. That’s an insane percentage of cash to have sitting in an account that’s earning less interest than the rate of inflation.
I would suggest everyone have a stock investment account and not worry about the percentage. Setting aside $1 per month is infinitely better than $0.
Bank advicers usually don’t advice people to it either, because the bank doesn’t make any money on those accounts,.
They do make money on those accounts as they only have to keep 10% of it to hand and can loan out the other 90
The European deposit protection is fixed at €100000 pr. customer instead of a percentage. They are not allowed to use customer savings for their own investment or loan outs. It’s handled completely separately…
Regardless of guarantee, the bank earns a lot more on loans than deposits, so their advisors will always try to push their loan products even when you have money in the bank. They want the customer to be in debt to them. That’s how banks earn money and always have.
The idea that a bank is some kind of piggy bank where they use customer deposits for investment is a bedside story. They loan money to loan out and then take a cut. It’s loans all the way. Banks have no interest in plain deposit accounts except for being a point of contact to the customer so they can sell loans.
