In Case of Emergency...

In this volatile economic climate, it is very important to expect the unexpected. That’s where an emergency fund comes in. To put it basically, an emergency fund is money set aside for emergent expenses. In the economic crash of 2008, many people found themselves without a job or steady income stream. They got into further issue (read: DEBT) by relying on credit because they had no emergency fund and/or very little savings.

Do I have an emergency fund? No. Do I intend to set up a separate banking account for emergencies? ABSOLUTELY. I'm leaning towards a TFSA (but more on that later.) I do have about one month's expenses sitting in my chequing account but I'm loathe to change it over. Why? No clue. Laziness? Fright? Not having done the appropriate amount of research on which kind of account to use for it? Let's say a mix of all three.

Many people worry because they don’t have enough to set aside to cover the approximately one to six months of expenses financial experts advocate for. They worry because they either don't have the chunk of change available right now or just can't imagine ever being able to put away that kind of money. But I think you should think of an emergency fund as a long term goal: slowly but consistently put aside money until you reach the amount you would like.

Another point of contention among financial experts and people desperately trying to put together a workable budget is how much you should set aside. Some say 3-6 months of salary, others say a flat fee of $3000, or 3-6 months of expenses. For me, that would be three wildly different amounts! You have to decide this for yourself so consider how long you would need to use the emergency fund (how long would you expect to be out of work or paying for a medical procedure, etc.)

You also need to think about what constitutes an emergency. Is it replacing a dying computer? Probably not... unless that computer brings in your only source of income (but scroll down for a few thoughts on that.) On all the blogs I've read (see my Blogroll for sources), emergencies have ranged from sudden unemployment, to emergent medical procedures, or weather-related damages to a home that aren't covered under insurance.

Advice on emergency funds that I agree with most (these just seem to make the most common sense):

• If you have an unexpected bill that you construe as an emergency, try to come up with an alternate plan to pay for it (if possible.) Can you pare down on your cell phone data plan or commit to no restaurant food this month? On that note, if you can pay the bill by tweaking your lifestyle, is it really an emergency? Thoughts?
• Your emergency fund should stay untouched until you face a bill that you literally cannot afford to pay (and the new Marc Jacobs bag that you put on your VISA last month doesn't count).
• Can you decrease the cost of the emergency? Can you shop around for a better deal on the car you are replacing after it got totaled in an accident?

Please don't read this as me preaching about the financial do's and don'ts but instead slowly figuring out the workings of a successful grownup life. I need all the help that I can get! If anyone has any advice on emergency funds, I'm all ears. What about you guys? Is anyone socking away some bills for a rainy day (aka the day the rain leaks through the roof and floods the kitchen?)

Losing your job or dealing with a serious illness is stressful enough without adding money woes into it. Take care of yourself now and put money away so that you don't run into trouble later. You can't leave it all up to chance because there are way too many ifs in this world.

*If you're looking for more resources on the importance of an emergency fund, definitely check out Give Me Back My Five Bucks. I know I say it all the time, but Krystal Yee really knows her stuff!

Pretty Reckless

"Craving, not having, is the mother of a reckless giving of oneself." - Eric Hoffer

Have you ever gone to check your bank account balance, only to find far less money in there than you expected? You frantically scroll through your banking history, looking for the out-of-place purchase or fraudulent activity... only to find nothing of the sort. Instead you just find financial stupidity of your own design... willy-nilly bank withdrawals, Starbucks lattes every day, food court takeout lunches.

Those tiny purchases you barely blink an eye at are actually the foundation of some pretty reckless spending. "But it's just a dollar here or there," you say. "Does it really matter?"

 You're damn skippy it does. But why?

• You'll get charged bank fees out the wazoo for overzealous use of your debit card (ask me about the Christmas season in university where I got dinged $75 by the bank for all the extra times I used my debit card... that was more than all the money I spent on Christmas gifts combined!)
• You won't actually be seeing where your money goes or have an accurate idea of what you're actually spending
• You have no idea what your actual bank account balance is (and boy howdy will it come as a shock. It always does.)
• It destroys any chance of sticking to a budget
• Myriad other reasons not listed here (but for reference, go check out Gail Vaz-Oxlade's site or Give Me Back My Five Bucks)
• Straight up, you're throwing your money away. 

So how do you fix it? First, let's please remember that I am no financial wizard myself and have also been guilty of reckless spending a time or two... okay, a bazillion! I've included some tips from money wizards below, as well as a few things that have worked for me in the past. 

• Leave your debit/credit card at home.
• Why this works: you don't have access to it so you're not tempted to spend it.
• When you do go shopping, do it with a list.
• Why this works: This 'money rule' from Gail Vaz-Oxlade does test your willpower but makes you better off in the end. Her advice if you see something you want that hasn't been written down? "Put whatever you think you want on your list, and GO HOME. If you still want it in 48 hours, you can go back for it." 
• Take out cash at the beginning of the week and when it runs out, you're done.
• Why this works: a little self-explanatory, I think.
• Avoid places where you can spend money.
• Why this works: see above
• Sleep on it.
• Why this works: For one, this helps curb the dreaded impulse purchase. Research shows that 88% of impulse purchases are made on sale items... so after sleeping on the idea, you may come to the realization that the sale item really wasn't that great a deal after all. Vaz-Oxlade makes a great point when she says "If you walk away from the idea of the buy, giving your brain enough time to weigh the actual benefits against the actual costs, you’re moving from impulse shopping to problem recognition."
• Take more than a casual interest in checking your online banking history.
• Why this works: the more aware of the running total, the less inclined you will be to spend like a rapper... or a Kardashian... or the dreaded combo of the two: KIMYE. 

You are the architect of your own (financial) destruction (and if you can identify the TV show that line is from, I'll give you a virtual cookie). You are the only one that can make the changes that will keep you on the path to financial success. It truly is the little things that add up in the end.