I've Added Thousands to My Emergency Savings This Year. Here's Why
- I've increased the amount of my emergency savings by thousands of dollars.
- I was motivated by rising prices.
- Economic concerns also prompted me to save more.
Should you increase your emergency savings too?
In order to be prepared for emergencies and provide myself with peace of mind, I have an emergency fund in a high-yield savings account. I've been keeping around six months of living expenses in the account because my husband and I are both self-employed and we own several homes and have two small children, so we want to make sure we have a large cash cushion.
This year, though, I've added thousands of dollars to my already hefty emergency savings account. There are three big reasons why I've made this financial move. Here's what they are.
1. Inflation has made my costs go up
One of the biggest reasons why I've added extra money to my emergency savings account is because my cost of living has gone up quite a lot.
Like everyone else, I'm feeling the impact of inflation and rising gas prices. We drive a lot and are spending a lot of extra money on fuel. Our heating and cooling costs are also higher than they were before, as are our food costs.
Since my living expenses have gone up, I've had to increase the amount that I save to ensure I actually have enough to cover a minimum of six months of essential spending if something should happen to reduce our incomes. Since I've added a few hundred dollars every month to what I spend, this alone meant I needed to increase my emergency savings by more than $1,000.
2. I'm worried about the economy
As I began investing more in my savings account in order to cover my higher living expenses, I also took a close look at whether I felt comfortable with having a six-month cushion. Since I am currently a little worried about the economy and the possibility that a recession could come along, I decided I wanted to increase the amount I've put aside.
Both my husband's income and my income could be affected by a recession that reduces the amount people spend and invest. We don't earn a steady salary, but rather his income relies on customers and mine relies on how interested people are in financial information. A recession could definitely impact both of our abilities to continue earning at our current level.
As a result, I want to make sure we have plenty set aside in the bank in case either one of us starts earning less money in the coming months due to an economic downturn. This meant adding even more money to the account so we'd have funds to cover us for around nine months or longer.
3. Rising interest rates have made borrowing more expensive
Finally, another big concern I have is that interest rates are rising. The Federal Reserve has raised the benchmark interest rate, or the overnight rate at which banks lend money to each other. This has resulted in all variable-rate debt, such as credit cards, becoming more expensive.
Since interest rates are higher, I want to be absolutely sure that we do not end up borrowing to cover any financial shortfall that might result from rising prices or a drop in income. This also prompted me to make sure I'm putting more money into my emergency savings.
All of these reasons made it clear to me that I should be investing more to prepare for a rainy day. And, if others share my concerns about the economy or inflation, they may also want to up their savings as well.
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