Good Day Everyone,
Last week I got a text from my cousin “in your opinion, how much money should you have in an emergency fund?” I knew my own answer so I didn’t even have to think about it. The first thought that came to mind though was “blog post” so here we are.
Before we begin, let’s define “emergency fund.” For the purpose of today’s post let’s define emergency fund as money set aside in a savings/chequing account that is earmarked for unforeseen events that require immediate funds (car repair, new roof, vet bill etc)
It’s important to know that there is no correct answer to this question. Like investing, everyone is in a different point in their lives, with different needs, expenses, liquidity, and financial savvy etc. Your situation in each of those categories combined should shape your answer. So today, I’ll share with you what I do, and why I do it and hopefully it will help you determine how much money you need in your emergency fund.
So a little about myself:
- Condo owner
- Living with fiancé
- Both of us have standard office jobs, nothing fancy except for…
- We both have employer matched RRSP plans so neither of us buy any additional RRSP outside of work (mine is slightly more generous than hers, but overall a very valuable benefit to us)
- We have TFSA’s invested in a diversified portfolio of stocks
- Our only debt is the mortgage and her OSAP loan which is a manageable amount
- 1 car
So back to the question at hand “Do I even Emergency Fund?”
When my cousin asked me, I quickly answered that I do not have an emergency fund. He said that the common thing he’s read about the topic is to have 3-6 month of expenses set aside. I told him that for me it was completely unnecessary because 1) we save for our annual TFSA contribution throughout the year, so we can use that money to cover emergencies if need be 2) the investments in our TFSA’s are extremely liquid so we can access that for bigger emergencies if needed and 3) we can use a home equity line of credit if absolutely necessary (Personal finance “experts” will say that this is a bad idea in a blanket statement, but HELOC’s definitely have their place in personal finance in a pinch).
But that is just me and my situation. My cousin is in a much different place financially with dependents, more responsibilities and a different views of personal finance. But our short text conversation showed him the different factors that I consider when I came up with my answer. He seemed to have a sense of clarity after the conversation so hopefully I was able to him.
The biggest emergency one deals with financially is the loss of employment. I’m in Canada so we get employment insurance, but that is often not enough to get people through unemployment. This is where the liquidity of your assets are so crucial. The ability to turn your assets into spendable cash is a key determining factor on whether or not/how much you should set aside for emergencies.
So that’s me, I’d love to hear from you. Do you even emergency fund? Please feel free to leave a comment below, or through any of the channels below. I personally reply to all comments and maybe what you say can benefit others.
Have a great day
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