Wednesday WTF: September 27, 2017
7 Things You Should Have Emergency Savings For
I have said before that you will never get ahead unless you are saving money, just to save money. What I meant by that is you have to have to always be saving extra cash for no specific reason other than building your savings up. This is saving, to build your emergency savings. Experts always mention that you should have 3-6 months living expenses saved up just in case of emergencies. While I agree that it is important to have that money saved up, I don’t think 3-6 months should be the end of that adventure. I believe that people should build up savings for everything in life that could cost them “out of pocket money.” For instance, your 3-6 month emergency fund might be needed if you get sick or injured and have to miss work. What if you also have a broken transmission during that time? All of a sudden you are taking from food money to pay for your lemon of a car. What I am getting at is that you need savings for lump sum nonsense that you will have to pay for. In this post, I will go over 7 items that you should consider having separate savings for if you wish to not go broke.
1) Education
For students of post-secondary education, this one is obvious. Expenses like books, stationery, computers and software and of course tuition are regular costs. But what if you are already in your career and aren’t planning on going back to school. I contest that in today’s economy learning is lifelong and one should make it a priority to upgrade their education every chance they get. Even if that means taking the occasional class at the local college or even just having some money set aside for educational purposes. Also, your RRSP has the lifelong learning plan withdrawal option that allows you to take money out tax-free. That’s another good reason to have an RRSP, my friends. Estimated Savings Needed: $1000-$5000
2) Children
Children are the most amazing, cherished, beautiful, cute, ways to spend every single last penny you have. Everywhere you turn kids are costing you money. From braces to sports to field trips to them putting holes in the neighbor’s windows, the money just evaporates. Let’s not forget about them going to school in the future as well. It has been estimated that raising a child to adulthood costs about $240,000 and that doesn’t include university. Having some money set aside specifically for children is a great idea. It will pay off come Christmas time, believe me. Estimated Savings Needed: $1000-$5000
3) Home Maintenance
As I mentioned a few weeks ago during Mortgage week at Budget Boss, housing maintenance costs can be absurd. My parents have recently put in a $15,000 water filtration/softener system in their home. New roofs cost around $20,000. Water heaters can be $5,000. Even something simple as yard tools can run you a few hundred dollars a year. The costs only increase if you have more land. Consider having an emergency fund specifically for home maintenance costs as when they hit, they are usually a back-breaker. Estimated Savings Needed: $5000-$25000
How much does home maintenance actually cost?
4) Cars
We all know that cars cost a fortune. Repairs can be frustrating and expensive and they always seem to come at the worst time. You wouldn’t believe how many people I know that have had their care breakdown around Christmas time. It’s like the car gods know. Having an emergency fund for the cost of maintaining your automobile is a great idea. It can even be used to pay for insurance yearly or bi-yearly to save money on premiums. Also, consider saving money n this fund to augment the costs of future automobile purchases. Wouldn’t it be nice to know you can buy a “new” car every 5 years because you put money away every month towards this goal? I certainly think so. Estimated Savings Needed: $1000-$5000+
5) Business Savings
If you own your own business it can be very costly. I always stress to my self-employed clients that they should have savings built up in their own lives, and within the business as well. Having savings built up to cover the everyday costs of running a business is essential to survival. You wouldn’t believe how many pizza shops went under because they had to buy a new oven. Just like you should segment your savings for every possible cost in your life, you should also do so for your business. The only difference between your savings and your business’ savings, is that the business account will need much more saved in it. Having cash on hand in any business is the key to lasting through the tough times. Estimated Savings Needed: $5000-$25000+
How much should your small business keep on hand for emergencies?
6) Opportunities
I think it is a great idea to have money saved up for the specific purpose of being able to take advantage of opportunities. What are these opportunities you might say? Being able to make lump sum investment contributions is an opportunity, think RRSP. Becoming partners in a business, starting your own business, or creating another stream of income is an opportunity. Buying a rental property is an opportunity. Changing careers that requires you to move cities is a huge opportunity. For me, going into debt with no guarantee of return is a risk. This makes having savings for the purpose of taking advantage of opportunities vital. Always keep your options open friends. Estimated Savings Needed: $5000-$25000+
7) Cash/Flow and Day to Day Expenses
I manage my day to day and month to month cash flow with my emergency fund. This portion of it acts more like a slush fund that allows me to spend when I wish and then pay myself back. My monthly variance is never too great and if I spend too much I adjust to recoup the costs. Seeing how I make roughly the same amount every month, I am able to gauge my spending. If I spend too much one month, I spend less the next. I put everything on my VISA card and then pay it back at the end of the week. It requires extreme discipline to use this system, so it is not for everyone. I never carry a balance and I collect the travel rewards. It is my system for cash flow management and it all stems from emergency slush fund savings. Estimated Savings Needed: $1000-$5000
Everyone is going to have different things in their lives that may cost them extra money in the future. Your list of excess savings might have only 3 things, while your neighbor’s list might have 10. The key is to find out what these large expenses will be and put money away for that purpose. I don’t recommend having 7 different accounts for all these extra expenses, but having one at a separate institution from your day to day chequing account is ideal. You don’t want to be buying groceries with Timmy’s Christmas gift money. Focus on the base Emergency Fund so that life’s unexpected events don’t ruin you financially. Once that is covered set up a side account for the purpose of covering the expenses mentioned in this post or others that will sneak up and drain your bank account. Remember, you don’t want to go into debt for a broken water heater.
Thanks for reading my post today and don’t forget to tune in tomorrow for Thursday Trim the Trash Time where I describe things you can remove from your budget to save you money. If you have any questions regarding Emergency Funds, please don’t hesitate to contact me at joe@budgetboss.ca. Have a great day friends!
“Your positive action combined with positive thinking results in success.” – Shiv Khera
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Email – joe@budgetboss.ca
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