Finance Is Not About The Money Your Family Makes: It Is About The Money It Saves
With the uncertainty surrounding employment, the financial crises many countries face, and the volatility surrounding investments such as stocks, bonds, 401k and traditional pension plans, it is a good time for families to take another look at how the savings plans within their households are structured. The need to re-work household budgets, shopping patterns, college savings accounts and family vacation plans are becoming more important as our economy remains unstable.
The rule of thumb used to be that the family wage earners needed an emergency fund to account for three to six months worth of unemployment, unexpected medical catastrophe or any other event that would prevent income from continuing to stream into the household. Today, the average recommendation is to have about one year’s worth of a nest egg in case it is needed.
While savings rates have increased since the beginning of the 2008 recession, the rates were never very high to begin with. As demonstrated by the housing crisis, consumers were spending and borrowing way above their means. Expenses were accruing for families at faster rates than money was being made.
With government programs at risk for funding cuts, retirement and college financial aid are not going to be worth what they are today assuming that the programs are not completely insolvent in the near future.
The need to families to start living below, not within, their means is the current reality.