Wednesday, January 11, 2012

Emergency Funds Can Augment Retirement Funds

With relatively low use, an emergency can become a retirement fund. The idea of a one to six month emergency fund is well known. Some advisors are even recommending larger emergency funds of one year or longer.  Emergency funds with enough money to cover long periods of time can eventually become part of an retirement.

Looking back, once I got into the habit of saving for an emergency fund, it became easy just to keep saving after meeting my goal. First, I saved one month, six months, one year and then five years of gross income. Since my gross income was 35% higher than my net income and my net income was 50% higher than our expenses, our "emergency" fund was actually enough for 10 years.  To save this much, we did two things:  lived below our means and saved the majority of my raises.

Although we did use the emergency funds, the funds were never fully depleted.  Our major uses of the emergency funds were for buying our cars for cash and replacing a roof.  We were fortunate that we didn't need to use the emergency funds for everyday living expenses..
Thus, when we retired, our emergency funds rolled over into being retirement accounts, providing another 10 years of living expenses. 

For more on The Practice of Personal Finance, check back every Wednesday for a new segment.

This is not financial, saving, or retirement advice. Please consult a professional advisor.

Copyright © 2012 Achievement Catalyst, LLC

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