Emergency Fund Excuses
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.