Emergency Funds
Posted by Victoria | Filed under Victoria
I suspect everyone reading this blog knows the importance of having an emergency fund. I certainly knew this for a while before I actually had one. My first financial goal was paying off my credit card. Once that was down to a manageable amount, I turned towards my student line of credit, but first, following Gail’s precepts, I set up an emergency fund. Just a small one: $1000 first, then I got it up, little by little, to around $1800.
My monthly costs are something closer to $1500-$1600 (without cutting things like home internet or reducing food to the bare minimum), so this was basically just one month’s worth. My target is three months. Six months would be better, of course, but as I am single and don’t have any dependents, three months will give me something of a buffer.
I’ve had occasion to use my emergency fund already. This was last fall, when I unexpectedly had to pay an extra month’s tuition. It was pro-rated because I was finishing my doctorate, but still, coming up with $1200 plus an extra plane ticket to Toronto for my defense was difficult. I was glad to have my line of credit to take some of it, but gladder still to have the cash ready in my TFSA to pay for the bulk of it. I would still be paying off some of my line of credit if I hadn’t had that emergency fun.
This came to mind this week because my grandfather passed away and I have the unexpected expense of flying to Sault Ste. Marie for his funeral. Being able to put my plane ticket (and my sister’s) on my credit card with the knowledge that I can cover most of it with my savings – before the next round of bills – is wonderful.
It will still put me back a ways in the game of saving, because I will have to save up all that amount again before I meet the three months’ target. But it’s better than having it sit on my credit card for the next few months until I can pay it off, little by little. I’d much rather be putting the snowflakes on my savings rather than my credit card. I’m learning, slowly as it may be, to use my credit card as a tool, not a crutch.
Working on finishing up a PhD in Medieval Studies, what Victoria really wants to do is walk around the world and write books. Twenty-nine and single, Victoria lives in Halifax and is trying to balance work and life.
June 15, 2012 at 8:13 am
Sorry to hear about your grandfather.
Thank you for the post, since I have 50$ more per week and couldn’t decide on either settting an emergency fund or putting more toward my credit cards debt.
June 15, 2012 at 9:34 am
Veronique, split the difference and put $25 on each.
June 15, 2012 at 9:56 am
Veronique,
If you’re already paying off the CC and covering more than the basic interest, stash the $50 in an emergency fund. That’s $100 a month will slowly accumulate over time.
June 15, 2012 at 7:17 pm
I always found it hard to be putting money away when I could pay off debt however… I, too, was always grateful we had the money available when we needed it.
I now like a BIG margin of comfort now and have a hard time when our general savings is less than $6000, like it is now. We also have an “omg-the-apocalypse-has-happened-and-we-need-lots-of-cash-now!!!” account that is untouchable unless the unthinkable happens.
June 24, 2012 at 10:59 am
I, too saved really hard when I was young and single. Every time I turned around, I had another emergency. My car would need $800 in repairs about every 4-6 months. I would save and save and save, but it would go to these horrid emergencies. I changed the way I did things, and when I put money away, it was no longer going to cover things like car repairs and moving, other things that come up so often. I started multiple funds to cover all those things that come up, then I bought a new car, although I could not afford it, I could not not afford it. I had had 3 used cars that drained me badly and was just plain fed up with that. I then bought a small stock fund, just $25.00 a month that went into a fund I could not withdraw from no matter what.
Here’s what I tried for. If I have something come up, I had to learn to pay for it with what I made, and that meant I had to reallocate on my budget to cover those things. I put money away each month for regular maintenance on my car so that I would not have to find a way to pay for later. I started a wish for fund for things I want to save for and would not buy until I had the funds. I still used my credit cards, but they were not used without my looking at whether I could pay down quickly and within reason.
At the end of one year, I had money in savings that stayed there. I had new furniture I had saved for. I was able to afford my car maintenance without it breaking my budget at any given time.
Things I did to help myself along the way. Seeing things you want can truly derail your path. I threw away every catalog that came in the mail. every single one. If you don’t see, you don’t want. If I went shopping for clothes, I put eveything on a one day hold. That meant I had to go back to the store…a big pain. I found I only went back once in a great while, and only for stuff I really needed. This cut down how much I spent on wants and kept me in the needs category. Because I worked several jobs and was busy all the time, I ate out a lot. This was also a budget breaker. I started making lunches and dinners one day a week, put them on divided freezer/microwave safe plates, all made up and ready to heat, just like a tv dinner, but homemade healthy and no chemicals. Making those meals one day a week saved me over $100 a week back in the early 1990s. It also helped me to relax when I got home from work and eat better since I was not too exhausted to make something healthy, it was already made. Some people thing that having so many different funds set up to keep yourself on track is silly. I found it kept me from blowing my money on things I did not need and gave me the tools to reach my goals.
June 28, 2012 at 4:57 pm
I’m sorry for your loss Victoria.