Liz Pulliam Weston On Planning For Emergencies


I like to emphasize financial flexibility, rather than dictate a set dollar amount. I think you should look at all your available resources, including cash in the bank, available credit and your “Plan B” options. Is there another earner in your household? How secure are his/her job prospects? Do you have friends or family who could help you out if your back was really up against the wall?

You also need to look at your overhead and how easily you could cut back if necessary. If you’ve got huge mortgage and car payments, for example, you have less flexibility than if you would if your “must have” expenses-shelter, food, utilities, insurance, child care, minimum loan payments-total 50% or less of your after tax income.

The people who are most vulnerable right now are the ones who spend every dime they make on their overhead and who really don’t have a Plan B. There’s just no wiggle room. If you’re a dual-income household and both work in the same troubled industry, or for the same firm, heaven forbid, you’re really on the edge unless you have a fat wad of cash in the bank.

Personally, I’m most comfortable when I have access to cash and credit that equals at least a year’s worth of must-have expenses. I think most people should try to shoot for at least three months’ expenses in cash alone, but unless you’ve already lost your job I wouldn’t stop saving for retirement or paying down credit card debt just to boost that emergency fund.


About Keerthika Singaravel

6 Responses to Liz Pulliam Weston On Planning For Emergencies

  1. Alex Jones says:

    First priority is cash flow, then an emergency reserve, then life savings. Debt is a vampire on all those things.

    • Not for nothing is the same loan an asset for the lender while being a liability for the borrower,

      Credit is great in its place.The problem is when becomes the easy answer for all our needs and wishes and nary a thought is given to repayment and the sacrifices that will demand in future.

      • Alex Jones says:

        People seem to have a poor understanding of money, given a false sense of value by ease of credit.

      • Interest rate manipulation seriously affects our perceptions of value and price,If inflation and low deposit rates discourage savings,easy credit fuels a consumption frenzy.
        Also saving up teaches us to value things more as we are forced to sacrifice.We automatically think about the price and value of things.Easy credit promises to do away with the pains of today and hustles people into living for the moment and not think of prices or affordability.If a person thought about how many days income a plasma TV would cost would people opt for a few inches more so easily?

      • Alex Jones says:

        Well said.

      • Thank you

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