HOW healthy is your emergency fund?
Some 38 per cent of Canadians have no money set aside to cover unexpected expenses, according to a 2012 TD Canada Trust survey.
So when disaster strikes, they rely on help from family or friends, their credit cards or other loans, what cash savings they do have, or their RRSPs.
Hopefully you are among the one-third of Canadians who have one to three months of living expenses set aside; the 13 per cent with four to six months saved; or the 16 per cent with more than six months saved.
But if you aren't, consider setting up an automatic transfer each payday to a separate account until you have a comfortable cushion.
And use the following checklist to soften those bumps along the road of life.
- Relationships: At the start, agree on who pays for what, perhaps based on relative earning power. For tax purposes, the higher income partner should pay all the bills while the lower-tax-bracket person builds up the savings.
- Plan for the income drop if one partner stops work to raise children. At the end, reassess and adjust your spending/ saving habits. You should probably change your will and power of attorney.
- Birth/death: After a birth, review life insurance needs for the wage-earner(s); and consider a registered education savings plan (RESP). After a death, do a total financial review and adjust to the changed conditions.
- Job: At the start, understand and decide on retirement savings options; try to maximize non-taxable employee benefits. At the end, implement expense cutting plans.
- Unexpected expense: Choose the least expensive way to use savings or loans; then rebuild your emergency fund.
- Windfall: Allocate amounts for "spend and enjoy," debt reduction, investing and any gifts.
The survey revealed the main reasons Canadians don't have an emergency fund is they're broke (56 per cent), paying off debts (46 per cent), paying mortgage payments (14 per cent) or saving for retirement or a child's education (seven per cent). Three per cent said they didn't feel an emergency fund was needed.
Mike Grenby is a columnist and independent personal financial adviser. He'll answer questions in this column as space allows but cannot reply personally. Email: [email protected]
