If you were to lose your employment tomorrow, would you be able to maintain your way of life and meet all your obligations for the next three months?
What is an emergency fund?
The emergency fund is an amount of money that we put aside and that we can access easily without any delays. It’s an umbrella for financial thunderstorms. I really think that everybody should have one.
The unexpected expenses that can affect us
When we’re talking about money, the unexpected expenses that can put us into the poorhouse are numerous.
- Replacing major appliances
- Vehicular break down
- Major house renovations
- Losing your employment
- Separation / divorce
Would you be able to meet all your financial obligation is you lost your employment? Unfortunately, your payments and bills don’t take vacations.
The majority of Canadians would not be able to face an unexpected incident since they don’t have access to the funds they would need.
Why is it so important?
To be able to face the unforeseen mentioned above, it is essential to have an emergency fund.
Without an emergency fund, you will have to have access to credit in the event of bad luck and this spiral towards debt can become hellish if your misfortune is too long.
Having an amount of money set aside gives us a certain peace of mind that is not to be overlooked. Knowing that we can cope effectively with the unexpected, removes a weight on our shoulders and allows us to appreciate life more.
If you have an accident at work and you have to take off of your job because of it, you will most likely receive financial compensation. Unfortunately this is not always equivalent to your usual salary.
On the other hand, if your accident occurs outside your work and you cannot return to work for x reasons. It is very likely that you will have no salary during the time of your recovery.
In both situations, would you be able to meet all your financial obligations?
If so, congrats! You probably have an emergency fund.
If not. You must start now to put money aside to have one, in order to be able to face the unforeseen things that life has for you.
And what if I don’t have the financial means to have an emergency fund?
I don’t know anybody who could do without one. Even if the amount we put aside is not as big as we would like it to be, it could be lifesaving in the case of a major unforeseen event.
You could start your at a smaller amount. An emergency fund of $1000 would be a good start to handle many unforeseen incidents.
Where do I put my money?
I would suggest opening an account specifically for your emergency fund. That way, you easily have a better control, keeping track of the amount and to see the progression of growth. Furthermore, in case of necessity, the access to your money will be easy and fast.
You can meet a financial expert to explain and clarify your options. He will show you different options; such as: savings account, celi …
How much do I have to put aside?
The majority of the experts agree to that we should have the equivalent of 3 to 6 months of salary in our emergency fund. It does vary from person to person, depending of your financial obligations, the ability to find work in your domain and your lifestyle.
To determine how much you will need, you will have to consider a few important factors that will help you determine the amount of your emergency fund
- Car loans, insurance
- Related household expense: electricity, telephone, insurance…
- All the other mandatory monthly expense.
Create a realistic payment schedule
After having calculated, according to your expenses, the amount you will need to accrue for your emergency fund, you have to establish what your monthly or bimonthly payment you will need to set aside to reach your goal.
Be realistic when you establish your payment amount. It has to fit within your budget; otherwise it will not be respected.
Be consistent in the payments you make, it’s the only way to reach your goal.
Monitor the growth of your savings
From time to time note the steady growth of your emergency fund. It’s motivating to see the amount that we put aside increase as the months pass. We never know when we will need such a fund, so it is important start it right away.
Our turn now
Are you thinking of starting an emergency fund or maybe you already have one? Did you find it hard to amass the funds to be able to face the unexpected?
Dane : -)