With the coming of the new year, the recession is expected to continue – no matter what government reports say – and so you should consider a couple of things concerning your savings account you set aside to protect you in times of emergencies.

There are a couple of things to consider in our economic times that will help better prepare you for the near future, that promises to be about the same as it has been for the last couple of years.

Keep in mind that many companies continue to lay off, reports continue to come in that the jobs lost over the last couple years may never return, and the so-called recovery will be a jobless one.

In other words, be sure to keep your emergency fund built up, and during 2010, I would advise you build it up for another several months at least, and if you can, up to a year. If the worst happens and you’re laid off, in these economic conditions you’ll have to assume it’ll take at least a couple months more than normal to get yourself another job. I would think in terms of at least several months more than normal to find a job if you’re laid off or fired; so building an emergency fund to reflect those realities should be part of your financial strategy for 2010.

The second element to take into account is the inflation rate. Already commodities are starting to rise in price for 2010, and the commodities rising in price directly have an effect on regular consumers. For example, oil prices and agricultural products are already rising in price, and that should continue on throughout the year.

While oil and related products are less than 5% of what we pay now, it is projected to reach as high as 6% or more for the year, which historically causes consumers to spend less during those period of times. More importantly, we need to prepare for those realities with our emergency funds, thinking in terms of adding an additional five to six percent in it to protect us during these times of inflation.

How to do that would be to get an accurate count of what your monthly expenses are on average through the year. Assume you’ll be paying an extra 5% during 2010 for living expenses; including oil, gas and food.

If your expenses are $15,000 a year say, and you’re building up a fund to protect you during an entire year, then just multiply the $15,000 by about 5% in order to come up how much more you want to put into the fund in case you lose your job or some other unexpected emergency arises which makes take a leave of absence or quit.

Either way, if you do, and you’re expecting your current emergency fund to take care of you for a year, and the cost of living has risen by 5%, you’ll have less money and time to work with than you originally thought. That’s why we must keep up with inflation to be sure we adjust our emergency fund reserves accordingly.

As far as the job market goes, it doesn’t look good in 2010, and that demands more money to be put away in my estimation, as the time it will take to get a new job could be much longer than normal.

Add inflationary pressures and longer time to find a job if you’re laid off, and you see how it would be wise to add several more months to your emergency fund at least, and if at all possible, I would extend it from at least six months to a year if you can, as the job market is that tough.

An emergency fund is there for you to buy time, and time is at a premium during an economic crisis, and inflation can cut back on the time you have it you don’t pay attention to it.

Tags: financial management, saving money, saving strategies

This entry was posted on Friday, January 15th, 2010 at 7:00 am and is filed under tips. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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