Do you struggle when life throws you a curveball? If you find yourself adding debt to your debt level each time you have an unforeseen event – You could benefit from starting an emergency fund. It takes time to build one, but having some money set aside for unexpected expenses can save you money in interest against borrowing money to get you out of debt.
10 reasons you should have an emergency fund.
1. You Only Have One Source of Income
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If you only have one income source, having a larger emergency fund is more essential than a dual-family household. You will need to be always prepared to lose your job – Yes, there’s Unemployment insurance – but trust me, you can’t “live” on it – And you may not qualify for it either! The maximum on EI is $980 bi-weekly (Net)
Having a nest egg with emergency savings is not easy, but even if you start an emergency fund with a few hundred dollars, it is a start.
- Some Experts say three months of income is your goal.
- Some Experts say 12 months of income should be your goal.
- I think any “Savings” is a good saving – and a start is a start.
Even if you can start putting away $50.00 per month into a savings account today, that would be a start. TFSA – Tax-Free Savings Account is a great account to start, as you have to think about withdrawing it.
2. Your Self Employed
Photo Credit: North East Mortgages
As I mentioned earlier about Unemployment – You may not qualify to claim unemployment benefits. Even if you have both a “full-time” job” you pay Employment benefits, and you have a side “self-employment.”
Self Contractors and Self Employment can cause “Feast or Famine” in your budget in any typical year – Let alone help you during an “Extra Slump” in your employment.
You will probably need extra savings in your “emergency fund” or have separate savings for slow periods.
You may need more months’ worth of expenses saved up in case of an emergency for any safety net.
3. Your Employment is Sporadic
When you’re with a company- and your work depends on projects – even if you’re an employee- sometimes you have slow periods such as “Spring Break Up” or during the holiday season, or sometimes if you are a construction worker- You may have fewer hours during certain months or between projects.
The “Feast or Famine” lifestyle is not for the weak at heart! It’s great while the sun is shining, and there’s lots of work to keep you busy – but you must budget for the slow times, and maybe your “Emergency Fund” should be a bit larger than compared to your neighbour who works a consistent 40-hour workweek.
4. You Own a Home
When you own your home, you will have repairs and upkeep bills to look after. Although you should set up an additional savings fund to cover remodelling and most repairs, you may have unexpected costs like your furnace or Hot water tank needs an emergency fix. Your emergency fund can help you handle these costs.
5. You own a Car
photo credit: Dream Time
When you own a car – You will always have repairs and upkeep. Even though you should budget for new tires, new windshield, etc., sometimes you may have a “Surprise” fix that could put you out a few hundred to a few thousand dollars.
6. You Live Far Away from Your Family
Travel can be expensive – especially when travelling across Canada. – Airline last-minute bookings can cost you more than when you plan. You never know when a medical emergency can happen that you are needed. You will need to have some savings set aside:
Price the cost of an airline ticket for yourself, plus any other expenses with travelling such as hotels, car rentals etc.
7. Medical Issues
Photo Credit: Etsy
A severe medical condition can cause you to max out your sick leave and take days off with no pay. Yes, there is “Short Term Disability” and Long-Term Disability at most companies – But if your job had lots of “overtime” that your budget relied on – Kiss that extra goodbye while you’re on any Medical Assitance.
Your parents could end up sick- and you may need to spend time away from home for an extended period to get them into a nursing home or perhaps a caregiver for a while – and Yes, you may again have some work coverage or Unemployment Caregiver insurance – but it’s not going to be anywhere equal to what your job was or is paying you.
Your spouse could get sick and be transported to another city while he/she recovers – and you may need additional savings to help out during this time.
Long-term Disability Insurance – will leave you with a lesser income than your regular job, unfortunately.
Assured Income for the Severely Handicapped: AISH – You may or may not qualify for it depending on your assets, and as well it’s very similar to Unemployment Insurance.
The maximum of AISH or EI is $980 bi-weekly.
Medication: You may try something your health benefits don’t cover if you have medical coverage.
8. You are Unhappy in Your Relationship
Yes, if you’re unhappy in your relationship/marriage – You should have an emergency fund- Divorce is costly, and if you’re unfortunate enough, living apart may have a substantial financial strain on your budget.
Costs to consider – Refurnishing, damage deposit, rent, lawyers, childcare etc.
9. You Have Goals
You may have life goals like travelling, buying a new home or starting your own business. By having an emergency fund – You can stop dipping into your other savings. This can help you from going backward, leaving the money you want to save for your goals and protecting your additional savings.
10. You Are Trying to Get Out of Debt
photo Credit: Financial Buzz
IF every unforeseen event makes you pull out your credit card or add it to your line of credit – My friend, you will never get out of debt. There’s only one way to stop the madness: to budget for unforeseen events. Yes – You need to save money in your budget for things you don’t intend to happen.
Example- Your car needs a whole new front end – $2500. 00, the garage quotes you. But you’re living paycheck to paycheck – On the credit card it goes – and you begin to make additional payments to a credit card.
Having an Emergency fund Allows you:
- Payless interest on borrowing money (Canadian Bank Rates have risen since 2015)
It gives you a cushion to focus on other savings.
See More On Budgeting
- Budgeting 101: What to Do With The Money You Are Saving
- Budgeting 101- Ways to Cut Expenses
- Budgeting 101: Where to Start With a Budget
- Budgeting 101- Why You Need A Budget
- How To Afford The Gym On A Budget