Emergency Fund Excuses
Posted by Gail | Filed under Saving, Take Control
The general rule of thumb for having an emergency fund is to save six months’ worth of essential expenses.
I know some spurts say to save six months’ income, but that’s overkill I think. You can cut all your non-essential expenses if the crap hits the fan, right? Besides, getting people to save even six months’ worth of essential expenses is a tough enough haul. They’re always coming up with “great reasons” to not save! Here are some of my favourites:
I have enough insurance. While you may have enough property insurance, life insurance, disability insurance to see you and your family through those long-term problems, the short-term kinks in your life can decimate your financial plan. You know it takes time to collect benefits, right? What are you going to do for the two to four weeks you have to wait for a cheques? Having an emergency fund can mean the difference between hanging on and falling into a debt hole. As for thinking all emergencies will be covered by insurance, perhaps not. Think divorce. Think kids getting sick so you have to take time off work. Think a death in the family.
I’ll get EI if I lose my job. Maybe that’s true. But do you know how much you’ll collect? The maximum EI benefit is a way short of most people’s expectations. And what if your emergency isn’t job loss, then what?
I have debt so I should pay that off first. While in a perfect world focusing on debt repayment means more interest savings, we don’t live in a perfect world. And since people always manage to find a good reason not to save, if you don’t start now you may be one of those people that never starts. Even if you’re socking away just a dollar a day, the fact that you’re saving puts you on a whole new playing field. Having moved from “not a saver” to “saver” your perspective will change. You may find yourself surprised at how much you love salting away a little money.
If you bought that sales pitch that a line of credit (or any credit) is an emergency fund, you drank the Kool-Aid! Credit is debt waiting to happen and debt can be an emergency of it’s own. Sure, that line may see you through until you get another job, getting settled in your new digs, deal with the departure of your partner. But then you’ll have to deal digging yourself out of the debt-hole you’ve dug because you didn’t have any cash in the bank to cover your butt.
Forgedabout the excuses. An emergency fund is a must-have and if you don’t always want to be swinging in the wind wondering how you’re going to cope, today’s the day you start building one.
March 19, 2013 at 7:15 am
Don’t depend on EI – the government is doing its level best to make sure hardly anyone qualifies to receive it anymore. Plus with all their cutbacks to staffing, the normal 4 week waiting period to get benefits is no longer the norm. Lots of reports of people waiting up to 3 months now to get the insurance benefits.
Come April 1, it will get even worse when the government cuts the over 500 people who heard an average 26,000 appeals a year down to just 45 people.
That premium you’re paying each paycheque is for insurance benefits in case you lose your job. But the government is making it very hard for you to get it when you need it.
March 19, 2013 at 8:17 am
Two to four weeks to see benefits is if you’re lucky. I was unlucky enough to release right around the time they were reorganizing the severance package and it took me 5 months to see my severance. We’re at almost 6 months now and I haven’t seen my return of value (instead of a pension.) I was extremely lucky to find a job right away. But even if I hadn’t I had enough saved that I could support myself for two years and pay for a master’s degree. Having the savings gave me options.
March 19, 2013 at 8:40 am
I believe it’s how you approach life. We have the power to minimize the impact and take control when the do-do hits the fan. The emergency fund is one of those tools.
I can’t help but see the same people always in disaster mode. A good example is the EI issue where repeat users use up the majority of the fund. I knew of a guy who had a family of four. He’s been to college/university 3 times, never completed, and then found a seasonal job where he would work half the year and claim EI the other half.
Another person is now in her 50s and always complains how poor she is, but she never worked to earn a paycheque. She’s divorced, but that happened over 20 years ago. She also has 2 university degrees she obtained on a govt program. She always makes comments “you have money”. I say “I work more than FT and I only have 1 university degree!”
It comes down to finding your power and not accepting the mediocre. Of course there are those rare situations where things really suck, but it’s not the majority of the time.
March 19, 2013 at 8:55 am
As Gail’s last rule in her latest book says, there are no rules. Everyone’s situation is different. Giving a blanket “everyone must have 6-8 months of expenses in liquid cash earning nearly zero interest in a fully taxable account” is ridiculous and should not be brought out as a hard and fast rule. Even if a lot of people would benefit from saving it, why not just say “have an emergency fund that is adequate to your sitaution”?
Live within your means. Diversify your investments. Rebalance your portfolio when necessary. Spend money on things that matter to you. Rules like those are near universal. Have 6 months expenses sitting in ING is not universal.
Which is not to say people shouldn’t save money and have liquid cash on hand, just it may not need to be nearly this much for a lot of people who are at very low risk for job loss and have adequate insurance coverage in place. Not just EI, but disability insurance and supplemental health insurance (dental coverage for instance), property insurance, auto insurance, etc.
Divorce and children–used here as a raison d’etre for the fund, are certainly not universally applicable, like to those who are single and childless or with adult children (a larger and larger share of the population).
The cost of keeping tens of thousands of dollars in a fully taxable account earning 1% (or less) when inflation is 3% (or more) year over year may end up being worse than the “emergency” you’re trying to avoid.
Sorry Gail, I disagree with your post today. At least, as a universal maxim.
March 19, 2013 at 9:31 am
I must say I agree with Adam here and have some concerns about with tasii’s statement.
First, in response to tasii, while I would agree that one can control their attitude in the face of adversity and ideally minimize the impact, sometimes life throws some substantial curveballs and the impact can be catastrophic. Death, illness, unemployment, traumatic accidents, divorce….these things sadly happen…hopefully not often, but they do. My son was diagnosed with significant medical issues and lives with complex disbalities and medical care that will never get better. That second income we had factored into our lifeplan….GONE. Someone needed to stay home and manage his care.
One thing I have noted is that people seem to think that when bad stuff happens there will simply be a period of time and then they’re back to where they were before in terms of earning potential and financial status… they’ll be able to pay off debt and so on. Often that isn’t the case. Living below our means and having money socked away for a rainy day has helped immeasurably. Living below one’s means also means that transitioning to reduced circumstances (when and if it happens) isn’t so scary.
Moving to Adam. I won’t repeat what he said, simply that I agree. My husband and I tend to maintain some liquid cash in a bank account (approx 2-3 months of living expenses, though this can vary). If the sh*t hit the fan again I would likely tap into our TFSA’s after about a three month period.
March 19, 2013 at 9:43 am
I hear what you’re saying Adam and Daisy, but I think Gail’s speaking to the majority of people who don’t even have enough to get the next paycheque, let alone even 2-3 months worth of liquid cash. Perhaps we can debate the amount to have on hand, but I take the underlying message to be that we should all have something on hand to deal with the inevitable bumps in the road.
March 19, 2013 at 9:44 am
I lost my job and didn’t have that emergency fund…. I have substantial debt thanks to marrying stupidly and divorcing badly. I also got caught in the “I can’t pay all my bills, but I can live” until I finally got a decent job after 6 months… in the interim, I got a filler job to pay the day to day expenses…. and you bet your sweet bippy I started an emergency fund (small though it is) while I pay off that debt.
There have been curve balls, but I’ve stuck to my guns. As my debt goes away slowly, I will save more. I’m lucky to have 2 pensions and a good job so that paying that debt is doable.
It may only be a small TFSA at this point earning very little, but it IS there, it IS accessible and it IS growing. In short, I AM becoming a saver and very money wise.
March 19, 2013 at 9:53 am
We have two emergency funds. There is the fund in the bank that would cover our expenses for amost a year and the fund tucked away at home in the form of ready cash in case an emergency taxi is needed, or we need to call the snow plow guy (he only takes cash) etc etc. Always best to be prepared.
March 19, 2013 at 9:53 am
We had enough of an EF to survive through Hubby having to go back to school for 2 years. He could never have retrained for a decent paying job if we hadn’t had that EF.
March 19, 2013 at 10:10 am
When my marriage fell apart we had to get MORE out of the line of credit so he could move out into an apartment. So when we finally settled all the division of assets, we ended up living on half and having to pay off whopping lines of credit. It wasn’t pretty.
As Gail often says, money gives you options. Options are a very good thing.
I have my EF in an ING TFSA, but I bought their Mutual Funds with it. So my money is still accessible, and it isn’t sitting at 1% interest. There is a risk that the value may fall, but I watch it closely. If it ever fell to an unacceptable amount, then I would move it into just a “high” interest account.
I often talk to my girls about the emergency fund that we have, for just in case. And we often talk about insurance, whenever we know someone who has had some kind of tragedy. We also talk about the planned spending. Start socking away $25 a week for our flights to Florida next year.
March 19, 2013 at 10:29 am
@Daisy: Please refer to my last qualifying sentence, I don’t think you read my post comprehensively.
I still believe most “emergency” situations can be minimized and/or avoided.
Your situation does not seem to be one of those.
March 19, 2013 at 10:56 am
Adam P, I dont know you and I’m def. not trying to get into an argument on the internet, but you do remind me of all the various and sundry people I hear who say they dont save because “interest rates are so low, whats the point?”
#1 – Having money in the bank saved and positive net worth/cash flow is always better than spending every dime that comes into your hands.
#2 – I have my EF in dividend/bond yield funds in my TFSA (i.e. all low risk, ok return). I really like that vehicle, because while it would be *nice* if my TFSA were my retirement fund (I also have RRSP and employer-matched RPP), its not as fixed and if the caca hits the fan then I can get the $ out super easy because the investments are liquid (no large capital losses) and tax-free.
March 19, 2013 at 10:59 am
All good points. Most people don’t have much if any emergency savings and run pretty close to the line and they are the most at risk of needing those funds. For that large group of people, I agree this article offers great advice. In our 20s we needed an article like this. We had no consumer or student debt but bought our first home 2 months after the wedding, and for many years lived paycheque to paycheque to keep up with just a modest mortgage on our entry level salaries. Fortunately nothing bad happened and we only had ourselves to worry about.
Now at 49/53 we keep a minimum balance of $1000 in our chequing account, and that’s the extent of our emergency fund. We had built up a fair sized fund, but realized we couldn’t actually picture any situation where we’d actually use it. Our most basic expenses consume 55% of our take home pay. If the lower income were lost for any reason, we could carry on forever with no luxuries and no contributions to our retirement accounts or extra mortgage payments. Any EI/insurance paid would be a complete bonus. If the higher income were lost we could carry on just fine with the lower salary, plus EI/insurance. In the case of job loses there would be severance paid. The only scenario that wouldn’t result in EI/severance is a firing with cause, which we’ve decided based on our skills and work ethic, and confirmed by our performance reviews is not going to happen. We’ve already saved enough to fund our retirement from 65 onward, and are now saving to be able to retire 8 yrs early. If we were forced to stop contributing to our retirement or paying down the mortgage at an accelerated rate, worst case it would just mean not retiring (as) early.
Because we live so far below our means, every week when one of our paycheques is deposited, nearly half is un allocated for any expense. It’s a little like a small emergency fund arrives every week. If there was no emergency, we remove the excess every Friday and contribute to our RRSPs, TFSAs or make an extra mortgage payment. We’ve been through 4 layoffs over the past 20 years, so we know even excellent employees are not imune to ecomomic realities, but each time it was an inconvenience but not an emergency.
March 19, 2013 at 11:23 am
It always amazes me how many people think that their job is very secure or recession proof. Anyone can be replaced (or hit by a car). If your job is essential they can lay you off and have your coworkers do your job. I take it from Adam’s post that he has investments and if the near impossible happened and he had an emergency he would use those. To each his own.
March 19, 2013 at 11:53 am
An emergency fund for the “big” emergencies is necessary but so is a smaller “Caca” fund. Case in point – my mother had a severe medical emergency last week. All of a sudden the 45 hours a week I normally work was down to 20 hours – resulting in a much smaller pay cheque this week. Plus the driving 1 hour each way to the hospital is eating into the gas budget. Parking at the big city hospital is $$. Food on the run because this wasn’t planned for – more $$. And we decided we better be prepared and get proper funeral clothes – more $$$. Having the “Sh*t Happens” fund relieves some of the stress.
March 19, 2013 at 12:18 pm
tasii….
Yup…was thinking about Adam’s post. My apologies.
However, I would qualify that many people think that “those times that really suck” won’t happen to them. Sadly, I do think they happen far more frequently than we like to admit, though take many forms, and are often exacerbated by financial instability. Not having to worry about money was a huge blessing when stuff happened.
March 19, 2013 at 12:30 pm
Right now we have a little over 6 weeks worth of essential expenses in our emergency fund – that’s assuming zero money coming in. EI or disability would stretch it longer. That’s the minimum amount I can live with having tucked away. Now every extra dollar is going towards our truck loan (our only debt)…we won’t contribute anything to the emergency fund until it’s paid off and we are debt free. Getting rid of that $450 a month payment will also lower our essential expenses and stretch the emergency fund further. Once we are debt free we plan to build it up to 6 months of essential expenses.
March 19, 2013 at 1:09 pm
Very timely post for me. Recently I learned that a relative in another province is quite sick and will soon pass away. It broke my heart to hear my father tell me that he can’t afford to attend the funeral of this relative who is very dear to him and my mother.
DH and I discussed the situation and determined that while this isn’t our personal emergency it is a family emergency and we have the means to help out so we will. My only true concern is how long it will take us to rebuild the difference – this will be our first withdrawal since starting the fund 3 years ago.
None of this would have been remotely possible if we didn’t have the funds set aside.
March 19, 2013 at 1:43 pm
Hi Everyone,
I’m a widow with two young children. Fortunately, my husband and I always saved, and he had life insurance( a small amount). Now we live within our means, and I ALWAYS put away a little money each month for emergencies, even if it is only $25. As this reaches $500 or so, I invest it into TFSA’s , so I can reach it if needed. We never know when the caca will hit the fan(as Gail says), and I never expected to be a widow in my 30″s – so we all need some sort of cushion to catch us .
March 19, 2013 at 3:12 pm
Even thought the typical emergency fund “should” have 6 months worth of money, that doesn’t mean that is mandatory. Even having a few hundred or few thousand dollars is better than nothing. I think its less about the amount, and more about the fact of having it and the habit of funding it that are more important. The hard part for many people is creating a savings plan that you can see – if its there, that means you can always reach it. The emergency fund needs to be out of site so you only use if for true emergencies. Hey, maybe even write out a list of emergencies, otherwise don’t use it!
March 19, 2013 at 3:22 pm
I don’t think there’s any real excuse for not having an emergency fund. Six months seems a good start but, if possible, adding a few more months is a smart thing to do. If an emergency arises the use of credit will only make the situation harder from which to recover.
March 19, 2013 at 3:43 pm
Hi Jill!
No worries! I never said “don’t save”; I said not everyone’s risk profile is the same and some people don’t need to stash 6 months away in a high interest savings account. I really dislike when gurus like Gail take the personal out of personal finance. Everyone is different!
EG – A single person with no children, renting, walks to work, highly insured, professional with a steady job has less need of a huge liquid emergency fund than a commissions only earning single mother of 5 with no insurance who drives to work every day and owns an old house with a leaky roof and bad plumbing. See how that works?! PERSONAL finance.
Everyone should save money and live within their means, but the extra can be put to use and invested after you have a safety cushion for emergencies adequate for your risk profile. To me that 2 or 3 months money is plenty to have in a High Interest Savings account, the rest I invest in a diversified portfolio that I rebalance annually (or more often if the markets go wonky).
It is amazing to me how many people are using their TFSAs to keep their emergency funds. That is a terrible use of a great gift from the government. Use your TFSA to invest (diversify of course to lower your risk) and get a decent return at least higher than inflation! Stick your savings in a regular account. Don’t waste the room people!
March 19, 2013 at 4:10 pm
We put my husband’s change in emergency fund – adds up quickly. I suppose the main point is to be able to easily access some money in an emergency (everyone has different definitions of emergency) no matter the money is located.
March 19, 2013 at 4:11 pm
should be no matter where the money is located
March 19, 2013 at 4:27 pm
I was one of those who thought that the LOC could be used for emergencies and when my husband got sick early in our marriage, I worked a crazy amount of OT and used the LOC. It took a long time (years) for him to get better. We got used to the debt even though both my spouse and I had previously not carried balances on any credit card and I had paid off my student loan in just a few years.
After he got better, I had some health challenges that we had to pay for. And much later I was off twice on disability once for pregnancy related complications and another for an injury that wasn’t resolving quickly. Since we had only reduced our spending and not tried to live within a budget the debt didn’t phase us – debt fatigue, I think. So strange now that I think of where we both came from.
While I was off, I started watching Gail’s shows, listening to her radio programs and reading her books. I had a clear understanding of how we got into this situation and a specific plan to get out. Debt Free Forever really helped to do the numbers, especially the budgeting worksheet that she offers on her website. We do have a small emergency fund even though I’m not back full time yet. (Going back soon, and it didn’t make sense to cancel the $50/mo automatic payment and start it up again. Besides) we reduced our expenses significantly to keep within the reduced income and make sure that we keep the fund going. Our caca fund / and a bit of emergency fund kicked in when the monthly disability payment was coming at the END of the month and when the next monthly payment was hundreds of dollars less due to a mistake in the deduction. Previously I would have wanted to cuss out the poor person who would have taken my call. Instead I could cheerily laugh at the decimal point mistake and say you know what please just correct it, that’s ok cause I have an emergency fund to take care of the cash flow timing.
We do have good pensions at work and have some savings otherwise. Our tax return is going to be split to pay some debt, to be put in the kids’ savings and the rest to emergency (about 1/3 to each). It won’t be a big fund but it should be enough to pay for the next emergency, perhaps the death of any one of our parents. They all live out of town / in another country and we want to be able to travel to where we need to go at a moment’s notice. It would be a stressful time already and I can’t imagine arguing about where the money is going to come from to attend an important funeral.
We don’t expect to be or want to be off of work again. We also don’t expect or wish for the death of any of our parents, but it will happen. And y’know it rains on everyone – we’d like to have a BIG umbrella instead of huddling under cover of a newspaper, let’s say. Our goal is 6 months and we’ll figure out how to earn the most ROI when we have a significant amount.
March 19, 2013 at 4:27 pm
Actually, (to some of the posters) your emergency fund is *not* supposed to be tied up in an investment. It’s supposed to be readily available cash. Even if you snub your nose at the stinky interest rates, and think it’s beneath you to park anything in money, please PLEASE keep a few months of expenses in cash.
Why? Just think back to USA in 2008. Boom–out of the blue the mortgage crisis crashes the stock market, hundreds of thousands slowly get laid off the next year, so they go to get emergency money out of their investments and 401K plans, but guess what…? Those weren’t worth anything because *the stock market crashed*! But they took what little they had out anyway. This is called “buy at the top, sell at the bottom.”
This is a huge reason why putting your emergency fund into an investment is the most horrible idea ever.
March 19, 2013 at 4:49 pm
I have in the past received $10,000+ special assessment bills from my condo association which needed to be paid within 30 days… since there is not really a way to plan for this, I have decided that I need to have an emergency fund for these things, plus the usual types of emergencies (illness, job loss, family emergency, etc). My personal comfort level is $50k. I put part in the highest interest savings account I can find and the other part in a GIC ladder. I want to know that when I need it, the money is there, regardless of what is happening with the financial markets. I also keep $1,000 cash inside my house for late night plumbing/vet/power outage type emergencies.
March 19, 2013 at 5:51 pm
The thing about an emergency fund is that no matter where you have it sitting, no matter if you’re not able to put as much in as you want every month, just the fact that you have Planned for an emergency will help you sleep at night. Worse case scenario you save lots of money and Never have an emergency. Hmmmm, that’s not so bad is it?
March 19, 2013 at 6:25 pm
Adam P – I agree with you in principle, but I think the recommendation to have 6 months essential expenses IS personal, because the amount of essential expenses will be different/personal for everyone.
To use your excellent examples:
“A single person with no children, renting, walks to work, highly insured, professional with a steady job” – that person still needs to eat and pay for shelter, and there’s almost no such thing as a completely secure (ie “can’t be lost”) job. His/her essential expenses will be very low, so 6 months of them will be low. Professional jobs are not as easy to get as jobs at McDs, and a search will often take 6 – 12 months (my friends and I are all professionals and while I’ve never lost a job, friends have – ex. government lawyer in steady job loses job because her department/Ministry’s funding is cut – took her 8-9 months to get a new job).
“A commissions only earning single mother of 5 with no insurance who drives to work every day and owns an old house with a leaky roof and bad plumbing” will have a much much higher amount needed for essential expenses, so 6 months of her essential expenses will be very high = personal to her circumstances.
I agree that the funds don’t necessarily have to be in a savings account, as long as someone has relatively quick access to a pot of cash in case needed (without taking a huge tax kick).
March 19, 2013 at 6:35 pm
To the ones who say they could survive on one income… If your spouse was injured critically, could you live just off disability (for one person)? How long can you take paid leave from work? And your expenses will INCREASE. Now you have hospital parking, meals, coffee, possibly babysitters, kennel, etc. Maybe even hotel bills if the spouse is transferred to another hospital for specialized treatments. Don’t dream that you can cut expenses under extreme stress. Phone bills will likely increase too. I just don’t think people consider everything. Accidents happen all the time. People can be in hospitals for months, and visiting people in hospitals is ridiculously expensive.
March 19, 2013 at 7:34 pm
Hello Gail,
I love your shows and your blog. Until a couple of years ago, I didn’t have an emergency fund. I feel so much better having an emergency fund. It really takes discipline but I can’t go back to the old financial life I had. It feels good to have money in the bank. It feels good to look at the account balances online. I took my car to Firestone for an oil change expecting to pay between $25 to $30 and found out I needed four new tires plus an alignment which amounted to $600.00. I told the manager to put the tires on my car before he could finish his sentence. LOL. The money was in the bank and it wasn’t an emergency because the money was sitting in the bank. I love that feeling.
On one of your recent posts, you talked about the emails from retailers we get when they have sales. I received an email from Neiman Marcus for the Mid Day Dash sale today and thought about you and automatically deleted the email. LOL.
Thank you so much for all the financial wisdom you have given for years.
March 19, 2013 at 9:17 pm
The peace of mind that comes with having some money set aside for emergencies is definately priceless!! It is very true that each of us has to decide what works for us personally, not what others are doing….that’s not to say that we can’t learn from their example.
I am building my EF right now and plan to keep my 6 months of expenses in my TFSA so it is accessible at any time I may need it…if the ca-ca hits the fan before it is fully funded then I will forgo my vacation plans to go home to Scotland next year and use that money too. I also have $2000 in my Planned Spending fund to pre-pay my cremation, but will use this too if need be…
For once, thanks to Gail’s advice and this blogs many reader’s comments etc, I finally have options for when life slaps me around!! LOL
March 20, 2013 at 12:14 am
Please don’t think EFs are just for job loss and that accidents can’t happen to you. I thought that too until I was hit by a car (as a pedestrian) in a freak accident and spent over a year off of work. If anyone thinks having a bunch of liquid money in the bank is a waste and could be put to better use, I’m here to tell you it’s not.
You would be surprised how fast that cash can disappear when you are not at full salary. I needed physio, massage, chiro three times a week each for 6 months. It dropped to twice a week, then once, but all of that I had to pay up front and wait for weeks to be reimbursed. At the beginning, i couldn’t drive, so i had to take cabs back and forth and insurance does not cover transportation or parking at all. Then there is the myriad other of things that insurance won’t pay for – they find any excuse not to pay for things. All the while, there are the regular expenses that continue – mortgage, food, property tax, heat, car maintenance, gas, insurance, etc. I also had to spend money to hire people (not covered by insurance) to do things I could no longer do for myself – mow my lawn, shovel, weed the garden, clean my house etc. I have always lived below my means but I was dipping into my EF regularly to pay the out of pocket expenses, the therapy costs, and other things that cropped up like a $1000 car repair.
You can easily go through 25k in a snap and I can see how someone could lose their house if something like this happened and they had nothing to fall back on. I agree with the poster who has 50k for peace of mind; that’s the right number for me too. Better to have extra than not enough.
March 20, 2013 at 12:22 am
Forgot to mention (esp for Adam P), I am single with no children, highly insured, professional with a steady job.
March 20, 2013 at 1:02 am
An EF is definitely important, but I can never build and maintain it. I have spent the last year struggling with health issues that have either reduced my workload, or taken me off work completely. The first thing we did when this started was adjusted our budget so we didn’t include my income. We live solely off my husbands income. Anything I do make, is saved. We cut back where ever we could. We also are managing to save 15% minimum of my husbands income.
But everytime I am off again, that EF dwindles down and takes forever to rebuild. I know that’s the purpose of it, but I would like to get it up where I can be off for a longer period of time and not worry about money.
March 20, 2013 at 9:17 am
“This is a huge reason why putting your emergency fund into an investment is the most horrible idea ever.”
You realize that technically a High Interest Savings Account is an “investment” right? So by your idiot logic we should shove our mattresses full of 6 months of cash?
Or you could diversify your investments so that you sell what is high during a market crash and not hold 100% equities. Bonds, REITS, pref shares, precious metals all did much better than equities during the crash and equities came back with a vengeance over the next 2 years.
2008 was a once in 3 generation crash that we’re still paying for with record low interest rates. People using their TFSA to hold large amounts of cash are doing themselves no favours.
I guess I should not expect intelligent discussion with the bottom feeders at Gail’s blog.
March 20, 2013 at 9:21 am
Anne- you also own a house. That changes your risk profile considerably and necessitates a higher emergency fund over a renter. As I noted and you conveniently left off. If I was struck by a car and off work for a year I would sue the driver and his insurance company to compensate, there’s also a special fund for people struck by unidentified drivers in Ontario (where I live and work in the insurance industry).
March 20, 2013 at 9:27 am
I do have a healthy EF (single, 45, with two young children). My boyfriend of 3 years just had a health scare. He lives an hour away. If they hadn’t caught this, next year he would have been in palliative care with 2months – 3 or 4 years to live. So he is single with no dependents, makes good money, has his own home, truck etc. First thing out of my mind was “I wonder how much of an EF he has”. Being off work and dying for 1 or 2 or 3 or 4 years would be stressful enough. But the extra expenses would be devestating over that amount of time. I also thought about my EF not being enough for all the travelling I would need to do, and time off work, and extra child care. It was scary.
I will be adding to my EF.
March 20, 2013 at 11:05 am
Adam – I didn’t mention it because I was talking more about immediate needs and ongoing costs after an accident. You’re right about suing the insurance company and driver but it takes time – could be years even – to settle and to recoup the money that has been lost to reduced salary and expenses not covered by the insurance company. Meanwhile, you still have to cover the gap. Also, once lawyers get involved, it’s neither quick, nor easy. The only point I’m trying to make is that someone could be financially devastated for years and years if they don’t have money set aside to deal with things like this. In my case, three months of salary would not have been enough and I feel more comfortable having more than less even if I’m not making a ton of interest from it. I am doing very well with all of my other investments so I’m ok with that decision. As you said, it’s personal finance.
March 20, 2013 at 11:30 pm
I am finally getting my emergency fund funded. I don’t have enough, yet. And I don’t know if 6 months is right for me. It may not be sufficient, it may be “too big” (at least for a starting point). What I DO know is that I sleep better having gotten into the habit of saving.
March 21, 2013 at 2:14 am
Whoever suggested that the EF had to be cash sitting in the bank that can be pulled tomoorrow? crap happens but as long as you can get at the money in a reasonable amount of time it can be in any investment you want. Personally, I use a 1 year auto renewing GIC that I can cash out at any time, although this will lead to the loss of the intreset. I’ve never used it, in part becvause using it would cost me money but if I need it I can get it out in about a week.
And Adam, feel free not to bother talking to us “bottom feeders” as we manage out momey as we see fit.
March 21, 2013 at 10:00 am
@ Adam P
“So by your idiot logic we should shove our mattresses ”
Maybe you are new to this blog but we tend not to insult each other personally here.
You make some interesting points; I completely disagree with you though -having grown up as a child where the main breadwinner was ill for a number of years before leaving my mother a widow in her early 40’s with 4 children to take care of; an emergency fund is very vital, and an accessible one at that – but still wouldn’t think of calling you an idiot.
Please keep the negatively out of it.
March 21, 2013 at 10:02 am
–that should be ” Keep the negativity out of it”..
March 21, 2013 at 10:07 am
@Adam P I’ve read your posts, and they got progressively less “sensical”… until unable to argue a point, you resort to insulting people.
btw, 2008 is not a once in 3 generation event. It’s the ongoing fall out from the computerization and job loss, that the computer revolution has spawned. It’s still occuring…. watch the news? Cyprus ring any bells?
How many jobs have been lost to computerization and outsourcing to other countries? And ALL of those jobs will be recovered? how?
And it’s still an ongoing process…. the economics will continue to be a changing thing…
Unemployment will continue to be a challenge. EI also. And for those with medical issues, insurance companies, will also continue to find new ways to deny or delay claims…. so those without a backup plan, will have additional stress at a time they least need it.
March 21, 2013 at 3:06 pm
Adam P –> Thanks for calling me an “idiot”. Think you proved yourself one instead. …You know the price of most bonds crashed in ‘08 too, right?
Yeah, I know a HISA is technically an “investment”, but it’s held in cash, not on a daily market value that could go instantly go through the floor. But you know what I meant, right?
The idea behind an EF is *not* to make you money. It’s supposed to be there completely intact when you need it. It’s not an “investment” so much as it a safeguard.
March 21, 2013 at 8:32 pm
Once I reached my emergency fund and six month goals I started making all new goals. I realized what is a better stick it to the big credit card companies move than becoming your own interest free bank? Right now I am saving up for some wants and needs and won’t be making those purchases until I reach those goals so I won’t be deducting from my emergency fund. Once you reach those milestones you feel empowered to take it to the next level and it becomes a fun challenge.
March 28, 2013 at 12:08 am
At the end of the day, there is no excuse for not having an emergency fund. I mean, how could you risk putting your family in jeopardy if something should happen? All it takes is a little bit of planning and persistence to build up some savings. And if you think that nothing will ever happen to you, then you couldn’t be more wrong. Don’t put it off, get at it!