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!

Tales of Me and the Taxman

If you drive a car, I'll tax the street,
If you try to sit, I'll tax your seat.
If you get too cold I'll tax the heat,
If you take a walk, I'll tax your feet.
Don't ask me what I want it for
If you don't want to pay some more
'Cause I'm the taxman, yeah, I'm the taxman
- Taxman by The Beatles (1966)

Would I call myself a "money moron" as my financial idol Gail Vaz-Oxlade would put it? Normally, no. But when it came to filing my taxes this year, I most definitely found myself on the receiving end of some pretty vicious insults from my biggest critic (that's myself, btw.) When you're new to the grown-up world,  I'm sure it's pretty common (acceptable even) to not be aware of the full array of claims you may be eligible for. But it's not acceptable to not be aware of the duties/requirements expected of you as a taxpayer.

Ignorance is not bliss, people!

Hopefully my experiences this year can help some of you out, or perhaps just getting this out in the open will permanently knock some financial sense into me. Here's hoping!

As a young person recently out of school and entering the workplace, I've gotten used to receiving a nice chunk of change back from the government after I filed my annual tax return. Low-income jobs, tuition/books fees and my timid foray into the world of RRSPs has always added up to a hefty return, and I've gotten used to this. Nay, have started to expect as my due! Why would I expect anything less when I went online to Turbo Tax and started to fill in all the lines and boxes with my financial information? So when I clicked 'calculate return', I immediately thought it was an error when I saw a negative red number! 'What did I forget to enter?' I thought frantically as I pushed through my stack of papers. 'How can I possibly owe almost $900? Turbo tax must be doing something wrong!'

'Oh yes,' I thought, when I noticed my error, 'I forgot to enter taxes paid from my second job at the grocery store. Silly Lisa, you must pay more attention.' But the horror only multiplied when I found my T4 and saw that I hadn't paid taxes there... at all. You see, I made the cardinal error of not amending my federal/provincial tax when I got an additional job.

You should be aware that when you get employment, you need to fill out a TD1 form (at least you do in Canada.) Your employer uses it to determine the amount of your federal tax deductions - all Canadians can claim the Basic Personal Amount (a figure hovering around the $11 000 mark). Aka you will not get taxed on salary made up to this amount. When I was at school, I would never make even close to this amount at my job so filling it out was quite easy.

It wasn't until I got my first "real" job that my salary rose to above this mark, and it was the first time that I carried more than one job at a time. But this being my first time for these things should not be an excuse. I simply didn't think to amend the TD1 at my secondary job to show that I had more than one employer at a time - you NEED to do this so that your secondary income gets properly taxed and so that you don't find yourself owing the government a huge chunk of your hard-earned change in April. (Note: if you're a freelancer, you also need to be aware of that tax situation as well.)

So here I am, having to give money this year instead of getting something back. And yes, I kick myself every time I think about it because I have no one to blame but myself. I definitely high-tailed it to my manager at the grocery store to amend my TD1 as soon as I realized my error. I head into the fabulous summer season (as well as birthday and wedding season) broke... but smarter. So I guess it's not the absolute worst place to be in.

Bottom line: don't be like me, don't be a money moron.