According to the recent Yahoo! Finance article, “Why You Need an Emergency Fund in the New Year”, “Five years after the financial crisis began, more people are increasing their savings rates and building an emergency fund, according to Fidelity Five Years Later, a study conducted in February 2013. The survey found that 42 percent of respondents increased their contribution rates to savings plans such as retirement accounts, and exactly the same percentage of people surveyed added to their emergency fund.”
While it wasn’t necessarily a New Year’s resolution for us, we’ve decided that in the relative calm that’s followed the financial crisis, it’s probably a good idea to work on increasing our own family’s emergency savings.
The $50 weekly plan
Our New Year’s resolution this year revolved around our retirement funding. We made a pledge to contribute $100, every week, throughout the year. However, we aren’t making this contribution into our retirement fund each week, rather setting the money aside for a one-time annual contribution. That means that until we put this money into our retirement funds, we have it as an additional reserve fund until year’s end.
Going from a fund amount to a fund time
In the past, we’ve tended set our emergency fund around a set number. After graduating from college, it was an expanding number, one that started at around $1,000 when we were just starting out, and grew to about $5,000 as we entered our 30s. However, during that time, our costs grew as well, which kind of negated some of our savings efforts.
$5k sounds like a lot of money, but…
Even though $5,000 might sound like a lot of money to have in a reserve fund, for a family of four, it doesn’t stretch as far as some might think. With things like property taxes, vehicle and health insurance, medical costs, and of course of the regular trappings of living a typical lifestyle with children, our costs can range anywhere from a couple thousand dollars a month up to $4,000 or more.
Therefore, we’ve now set a goal of expanding our emergency fund based upon time rather than amount. This goal now focuses on growing our fund to 6 to 8 months of reserves, which while a stretch, will provide our family with more financial security. And using that $100 weekly contribution to our retirement plan is the first step in our plan, which we hope to bolster by making separate contributions to emergency savings in similar amounts once we meet this first goal.
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The author is not a licensed financial professional. This article is for informational purposes only and does not constitute advice of any kind. Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.