I’m so glad I have an Emergency Fund!

July 28, 2011 By 9 Comments

I’ve always been a huge advocate of setting aside money “just in case”. I think an emergency fund is essential to financial health, in the long-term but especially in the short-term. I’ve worked hard to build mine up to a healthy $2,500 this year, and up until this point have only dipped into it once for $65 dentist appointment.

If you can believe it, I actually thought I would get away with having a substantial balance in my TFSA without incident forevermore, but alas, scheduling conflicts have forced me to dip into savings just to tide me over until payday.

If you remember, I moved into my  new apartment last Saturday. Because I moved before the end of the month, I erroneously assumed my damage deposit + first month’s rent would be due on August 1st. Well, this isn’t the case. My resident manager has asked for my damage deposit this week (I paid it yesterday) and first month’s rent by this Saturday. In cash.

Ever heard that a credit card is NOT an emergency fund? This is a great example why.

To tide me over, I withdrew $1,000 from my emergency fund this week to cover the cash expense of my damage deposit + first month’s rent. Imagine I didn’t have that money immediately accessible in a savings account — a $1,000 cash advance on a credit card is not a pretty sight. I’m pretty sure the interest on cash advances on my credit card is something stupid like 20% or 25%, whereas the cost of withdrawing it from savings is 0%.

THANK YOU, Emergency Fund!

I can’t tell you how nice it was to tell my new resident manager, “no problem” when he asked for $1,200 cash this week. Having the money set aside prevented what would have otherwise been a serious headache, which may or may not have included awkward requests at work for cash advances before payday. Thankfully no has to know I was totally broke this week… except, of course, all of you who I am now telling this story to on a very public blog.

My plan is to replenish the missing $1,000 from my EF this Friday when I get paid, and the rest on August 1 when my old roommate returns my damage deposit for my last apartment. Crisis averted, Bridget’s butt = saved.

Build your emergency fund, kids. You will need it.

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I dipped into my Emergency Fund!

June 22, 2011 By 2 Comments

Yikes! I have been building the EF up for nearly a year and it’s gone totally untouched up until this point. The last time I made a withdrawal was September 2010 to pay the damage deposit on the apartment I currently live in. That time it was $600 — this time, thankfully, it was only $64.

Were you worried I had wiped it out entirely? No need for that yet; knock on wood!

I had made a dentist appointment when I was in France (they called me when I was on the train between Nice & Paris!) for when I got home, then totally forgot about it. When it came up last week, I hadn’t budgeted at all but went anyway because hey, it’s the dentist. You need to keep up with that stuff. After a cleaning, fluoride treatment, X-rays and check-up, my bill came to a whopping $317! Thankfully, I’m still covered by the University’s graduate student health plan (until August!) so I only had to pay $64.

Lesson: the right health plan is worth it. Always opt in.

I love the student health plan. It’s probably saved me $2000+ since it was implemented two or three years ago. It makes my birth control cost $5 instead of $40. It makes my glasses and contact lenses cost $50 instead of $200. And it makes my dental bills cost $64 instead of $317. Seriously, it is good stuff.

Anyway, even though the amount was small, I’m still glad I had the money available since I’m on a credit card diet post-France. I’m a huge advocate of an Emergency Fund — even more for the times I’ve had to use it, and that hasn’t been often. It’s currently at $2500 (ok, $2436 until next payday!) and while I definitely want more in there, I feel like that’s a really solid start. It’s definitely enough for an unexpected medical expense or a plane ticket if there was a family emergency, and it’s more than enough for small things that I fall short on like dental bills or groceries. Because I just got back from a month-long trip and am only working part-time, I’m scared of coming up short on rent or food money, but knowing I have cash set aside “just in case” takes a lot of the pressure off.

It also makes me feel really guilty for buying a sweater and a tank top for $63 the same week. Whoops!

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Snowball your savings

January 11, 2011 By 8 Comments

Dave Ramsey is credited with the “debt snowball” — a popular method of paying off debt, that works by focusing on eliminating your smallest debt first, while just making minimum payments on all the others. When the first debt is paid off, you then use the money you were directing it to tackle the next, and so on until you’re completely debt free. This way, each payment grows like a “snowball” as it attacks each subsequent debt.

Since I get so very pissed off at my accounts growing at a snail’s pace, I was wondering if I could reasonably apply this method to my savings accounts?

Instead of $150 here and $250 there, etc. why not pay each one a “minimum payment”, then throw the rest at one goal? I think I could put $100 minimum at everything, while focusing on meeting just one goal. The only thing I would have to contribute more than $100 to regularly is my vacation fund, since that will also be regularly depleted at a rate much more rapid than $100/mo!

I guess I just really don’t want to wait for anything to happen, I need some accomplishments now! Snowballing my savings would let me meet my goals in rapid succession, rather than all towards the end of the year like they’re currently paced out for.

Having lots of goals at one time is daunting to me. Thinking about my vacation fund, emergency fund, RRSP, house fund, then wanting to save for investing, a family and someday a car is just overwhelming. That’s a really long list! I’m comfortable with my income, but when I start entertaining all these wants it can feel small. If I could knock a few of those items off the to-do list, it might be more manageable.

The most infuriating thing of all, however, is the reality that I could have everything I wanted if I just saved less money and used credit to fill in the gaps. Why have an emergency fund? There’s an empty line of credit here that will be really accommodating in your time of need. Want to go on vacation? Well, this Visa card is free & clear. Oh, you need a car in the future? The vehicle of your dreams can be yours for only $399 per month! Also, why try to save 20% for a down-payment on a home when the bank will let you get away with less than half that? Maybe 5% is all you need! Retirement? You have 40 years to figure that out! Besides, you might win the lottery any day now, and then all your efforts will be for naught.

Living within my means means living in reality, not the credit card fantasyland the rest of my friends get to frolick about in. Am I a bad PF blogger because sometimes I want to join them? It just looks so much easier. Being financially responsible sometimes isn’t very fun.

So I’m going to try to snowball my savings for the next few months and see how it feels. I will ONLY put $100 into my House Fund, and $185 into my RRSP (cutting this down to $100 is too painful so I’m going to keep it as is), then my main focus will be just getting that emergency fund to $3000. Once that’s done, I will move on to my next goal. If I don’t like the system, then hey, at least I have a fully funded emergency fund and I can return to divvying up deposits equally between my other accounts. The important thing is I will probably be able to meet my first goal by the end of March (!!!) so no more waiting around for things to happen! I will keep you posted..

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Why your emergency fund needs to be smaller — and larger — than you think

January 10, 2011 By 4 Comments

I love having an emergency fund. While I hate ever needing to use it, it has gotten me out of an unexpected financial bind on more than one occasion. An emergency fund is there to cover blips when things don’t go as planned: car repairs, emergency dental or medical bills, etc. It can also function to tide you over and pay your regular bills for months if you find yourself unable to work or terminated from your job. It is NOT to cover the times you accidentally spend $400 at the mall and an emergency fund is NOT a credit card or line of credit.

There’s a lot of articles online musing about how big or small your emergency fund should be, and which one I agree with usually depends what money-mood I’m in.
The reasons you may be able to get by with a small emergency fund are:

You live well below your means, giving you plenty of flexible spending dollars that can be redirected to cover an unexpected expense.

You have multiple sources of income, so if one income stream is lost it can be readily and easily replaced.

You have plenty of liquid assets. While all the money you have (vacation fund, savings for a down-payment on a home, etc.) may not be earmarked for emergencies, it’s still there in case your emergency fund runs out.

The reasons you need more than you do think are:

More than one emergency can happen at a time. Imagine this: a car accident costs you a huge repair bill plus an ambulance ride, and then puts you out of work for 3 months, during which time your water heater/furnace/whatever breaks down. Ouch.

You might not be able to work, period. Life is tricky, and you can be diagnosed with a disability later rather than sooner. Imagine the adjustment time you would need if something caused you to lose your eyesight or your hearing. (Recently on Get Rich Slowly writer Sierra Black blogged about depleting her emergency fund when she was diagnosed with a condition that temporarily crippled her hands! She had to make a lot of expensive adjustments just to keep going.)

Sometimes it’s not about you. Sure your money can carry you through a hardship, but imagine you found yourself in the position where you needed to help a family member, like a sibling or an aging parent. While there’s no obligation for you to help a loved one out of a mess, you might still choose to do so and your emergency fund might be your source of financial help (in the meantime, try to encourage those near & dear to you to develop their OWN emergency funds!).

Most financial advisors will tell you to strive for 3-6 months emergency fund, others as much as a year. It really depends on what you need and what makes you feel safe. I’m currently striving for $3000 in my emergency fund (just over 3 months worth of expenses for me), and then plan to add $1000 or $2000 to that every year thereafter. Ultimately I feel like $10,000 would be a solid number to rest at, given I continue to maintain all those reasons listed above why you can rest easy on a small emergency fund. I think if my bills were closer to my income or most of financial assets get tied up in retirement & home ownership, I would strive to have more cash on hand, especially if I have a family and/or a vehicle (nothing seems to eat up money faster than cars and kids).

Do you have any thoughts on the “right” amount to have in an emergency fund for yourself? Do you ever consider experiencing a disability or having support of a loved one when building your emergency fund?

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