Sunday, May 7, 2017

One Thing You Can Be Sure Of In LIfe

          We all know people who spend their entire paychecks.  These people live paycheck to paycheck. If you do not know anybody specifically, you can roughly tell by their actions if they live paycheck to paycheck.  Some of these people are in dire straights, while others are just more managers of their money. Some people have plans for their money even before they receive it.  These people might have a lot more fun, but they are also a lot more stressed.  Unfortunately for the rest of us, we here the complaining and snapping at people. 

         The one thing we can be sure of that will happen in an individual's life is an emergency.  These emergencies can be things such as car breaks down, roof leaks, or a job loss.  Emergencies can occur without any notice.  People need to prepare for emergencies before they happen.  People prepare by saving 3 to 6 months of expenses in an account for emergencies.  This is called an emergency fund. 

         The emergency fund  has to be easily accessible.  This can be money kept in a savings account, money market fund,  or somewhere in your house.  By having an emergency fund, an individual will not have use a credit card or sell investments to fund these emergencies.

        Having an emergency fund also allows an individual to sleep better at night.  How much money should be in an emergency fund?  The amount of money put in an emergency fund should be at least 3 to 6 months worth of expenses, but an individual should make there emergency fund as big as they need.

   How would you feel when somethings happens like this:
  • car breaks down
  • furnace breaks down
  • get sick
  • lose a job
  • sewage backup
  • house fire
   For anything that people have insurance for, there is a delay from receiving moving from insurance. For example,  if your house or place of residence catches fire and you have to go to a hotel, you will have immediate access to the money via the emergency fund instead of putting money on a credit card. The insurance will take a few days to go through and you might have to put up a fight to get it.

   People who save money these days will actually lose money due to the interest rates that banks pay on savings accounts and how this compares to inflation.  See, the emergency fund is insurance and not an investment.

    Do you have an emergency fund?
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  1. Emergency fund is such an important thing to have, I do have one and like to keep a few months as an "insurance". Cheers

    1. A previous job I had was fulltime, but the entire staff was not guaranteed our hours. One time we had very little work for 3 weeks and we were called everyday to be told there was work or not. That made me start one.

  2. My brother overspends makes double what I make and still asks me for money ($2k this time). He just always think my parents and I can bail him out but maybe we are enabling him. I gotta stop being so nice. I always have some money handy. I don't have an emergency fund per say. I plan accordingly to the expenses I have and save enough to pay them off. I can always withdraw from my investment accounts if I need bigger amounts... or use line of credit.

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    2. If needed, I have been taking money out of my margin account that equates to a percentage of the combined income received in TFSA and margin account for that month. I try my best to avoid this happening such as selling options and try to keep my expenses relativity low.

      I did not take money out of savings for in a while.

  3. Completely agree that an emergency fund should be looked at as insurance and not an investment. Well said.

    I thought the one thing we could be sure of in life is that we all will die. :) Morbid, but perhaps that's why we should consider more carefully what the true purpose of life is! Thanks for the article!

  4. Emergency funds are entirely a necessity and one that people often overlook. I have about six months worth of emergency funds, but I keep 25% of it locked in a CD so that I can't access it unless I absolutely have to. It's a great way for me to protect myself, from myself. I have the will not to spend it, but it's better that the alternative of me investing in the market and then having that emergency pop up when I don't have the cash.

    1. Duncan's Dividends,

      Emergency funds definitely are important. For me, I had some in high interest savings account and some in Tax Free Savings account. The interest rate is under 1%, which is not important since the main reason to have an emergency fund is for "insurance"