Quote:
Originally Posted by Aleta
If you have $25,000 in your EF, you would want it to grow by at least 4% a year in order to keep up with inflation.
Your expenses will change over time
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I agree that your expenses change over time. The 4% thing isn't really accurate, though, because just saying the inflation rate is 4% doesn't mean your expenses will increase 4% each year. Many of your biggest expenses may be fixed, like your mortgage and car payments. Our auto insurance premium drops a bit each year as our cars get older and less valuable. Other expenses may disappear entirely, like the payments for DD's braces which will end after the May payment, or a car that gets paid off.
So you do need to periodically revisit your EF needs. Sometimes you may need to increase the EF, other times you may find you can actually decrease the EF as expenses fall.