Should People Increase Their Emergency Funds Every Year to Keep Up with Inflation? — Internet Responds 'This Is Where Budgeting Is Key'

With the alarming increase in everyday expenses due to rising inflation, consumers are turning to the Internet for financial advice. One Reddit user questioned how much they need to adjust their emergency fund every year. 

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Another user lamented that published inflation rates don’t match their lived experience. One user wrote: "May (2024) was allegedly 3.4%, yet my utility bill is up over 20%, rent is up 12%, groceries are offensively high, and any repair or replacement costs for housing, vehicles, etc. is certainly over 3.4% ‘inflation' or the 4.5% HYSA rates." In other words, can you keep up?

Other users were more confident that budgeting and expense tracking were key and jumped in to offer advice. As one user succinctly stated, "This is where budgeting is key. An emergency fund should be X months’ expenses; as your expenses increase or decrease, the emergency fund needs to be adjusted to match." 

The general consensus is to keep six months’ worth of expenses in an emergency fund and adjust it to match those expenses as they change. Depending on your job security and how easily you could get a new job, keep anywhere from three to 12 months expenses in an emergency fund. 

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However, one user warned that lifestyle inflation is usually more of a risk to personal finances than the difference between having, say, six months’ or 5.8 months’ worth of savings in an emergency fund. If you put a kid in daycare, get a new mortgage, or buy a new car, you’ll see more impact on your budget than inflation alone. 

A Reddit user who calls themselves Default87 said: "I wouldn’t (and don’t) base my emergency fund increases on the published inflation numbers because my inflation isn’t the same as the published inflation numbers. I track my expenses and once a year evaluate if my emergency fund is large enough for my current expenses. Any inflation that I see personally is baked into my expenses, which then, in turn, influences my emergency fund."

Other users offered advice on where to save your emergency fund to outpace inflation. Reddit user geoff5093 said, "Your emergency fund should be in a HYSA earning 4-5% interest." Another user pointed out that if your high-yield savings account (HYSA) yields 4.5% right now, you will likely yield higher growth than most inflation metrics.

The bottom line? Inflation is having a very real impact on millions of families. You need to keep up with inflation, but you’ll need to know how much you spend to do that. Budgeting, expense tracking, and monitoring lifestyle inflation can all help you reach your financial goals, even when inflation seems to skyrocket. 

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