Monday, 21 January 2013

Emergencies - The Financial

At the moment there are three fire trucks and one ambulance on my street.  Just a couple doors down something has obviously gone wrong.  It's kind of funny, we all know that such things happen but we all seem certain that it will happen to some one else.  Unfortunately we are all "somebody else" to the rest of the world.  So begins a series of posts that will leave you a bit less scared by emergencies and a whole lot more prepared.

I'm sure you've all heard of an Emergency Fund.  It is a pot of money reserved to tide you through absolute emergencies.  (Like losing your job or your furnace cutting out in the middle of winter, not that great sale down at the sporting good store or not having a matching purse for your new favourite shoes.)

The general rule of thumb is to have at least 3 months worth of required living expenses.  I would recommend 6 months eventually, especially if you are in a profession where it will take a while to find a job.  EVERYONE should have an emergency fund for the following reasons:

1. Bad things happen to good people.

I'm sure that the people down the street are perfectly lovely, they've still got emergency vehicles outside their house.

2. Bad things happen in threes.

Ok, maybe not in threes precisely, none-the-less when one thing goes wrong there is an uncanny trend of all hell breaking lose.  Make sure that you have the financial means to take care of multiple disasters.

3. Emergencies are expensive.

What can I say?  Most emergencies will come with a large price tag.

4. The other option is credit

Some people will justify a spare credit card or a line of credit as an Emergency Fund.  I disagree completely.  When disaster strikes and you start calling on credit you are adding financial strain to the situation.  In fact when the disaster is finished you will likely find your self in a larger world of hurt since you have dug yourself a hole of debt.

So, where do I stand for my emergency savings?  I have a grand total of $480.43 in my savings account.  (Give me a bit of a break while I explain to you the why's and what for's).  The biggest emergency for me right now would be anything that would cause me to lose my job.  Fortunately for the next 2 years I am covered by disability insurance.  Any decrease in pay will result in an increase to my disability check which, if necessary, will cover my entire pay check.  I have my savings planned so that at the end of 2 years I will $5,743.11 set aside, which is three months of essential living expenses.  I don't need much more since I could easily find part time nursing work that my knee could handle.

The second largest emergency I could face would be a problem with my house, for that I have over $4,000 dollars set aside for house maintenance, and more is being set aside each month.  In the case of smaller emergencies I have $1,705.32 every month that could be reassigned at a moments notice without skipping bill payments or cutting essentials like food and health care.

I know what could go wrong and I have a plan in place that will allow me to deal with the major problems in life.  That gives me control of my life even when things go wrong.  There is no reason why you shouldn't put such plans in place too.

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