After the downturn, do you still have an emergency cash fund?
If the world were designed by economists and advisors, everything would be covered under the umbrella of “good financial sense.”
You buy a home, you put down 20 per cent out front. You earn a salary, you store 18 per cent in your RRSP.
But the recession kind of acted like a big RESET button, not necessarily changing what we view as responsible consumerism but shuffling what we’re able to do about it. Now we might put down just 10 per cent on a home. Now we might have to push that retirement date by a couple of years.
Perhaps the first thing the downturn eliminated, though, was the emergency fund, which is a key staple of “good financial sense” but something nearly half of Canadians today don’t have.
A new poll from CIBC shows that 45 per cent of Canadians have no emergency savings.
*Bing: How to build you emergency fund
According to the survey, 40 per cent of 45-to-64-year-olds don’t have cash for the unexpected, while nearly half (49 per cent) of 18-to-44-year-olds admitted the same.
Most said that, should a crisis arise, they’d have to dip into their retirement savings or take on debt to cover themselves.
This, of course, should be no surprise. In a world still short on cash, the first things to go are those on the fringe. Emergency funds are a nice safety net for tomorrow, but if they’re not paying the bills today, they’re expendable to many in certain economic climates.
Still, what Canadians have to remember is an emergency fund, unlike retirement, which might require more than a million bucks total, doesn’t have to be daunting.
You only need three months income for a proper emergency fund to cover unexpected health problems or car trouble or home repairs.
That’s all it takes to get back under the umbrella.
By Jason Buckland, MSN Money
Posted by: William | Aug 14, 2012 1:16:55 PM
I always keep about $70,000 available as an emergency fund. In addition, I also have some low risk short term investments I can tap into, if say, I end up unemployed for many years.
Posted by: Western Guy | Aug 14, 2012 2:00:10 PM
In many ways available cash on hand is an archaic idea.
Im in my early 30's and personally virtually all of my networth is invested into long-run investments that yield very well. It just doesn't make any sense with current interest rates to sit on cash as debt is both readibly available and very cheap.
My emergency fund is an open and available line-of-credit. It costs me nothing as I'm not currently using it but it has 150K room if I need it at around 4%. This rate is much less than my long-run investments so it makes no sense to liquidate one of them to offset a "potential" future problem.
The people I feel sorry for are the debt is bad, cash is good crowd as it isn't very effective or efficient in the modern financial society. Certainly their position is more secure for the first couple of years but after that as leveraged investments start growing it quickly becomes apparent that the reward for the risk is many times better. Basically if you play a tight safe game you probably will retire in poverty while individuals like myself will have 8 figure networths.
Posted by: Barbara S | Aug 14, 2012 7:46:05 PM
I too consider my line of credit as my emergency cash fund. I had invested in mutual funds as watched my money decline during the China crisis, the American crisis, etc. A few years ago before TFSAs were invented, I cashed in my losing mutual funds and put it all on my mortgage and other debts. At the moment, I have no debt (but I also have not increased my saving).
Posted by: Eaufemme | Aug 15, 2012 10:37:55 AM
We had $70,000.00 in savings (and adding to it) before the economic downturn in the fall of 2008 - I lost my perm FT job and have never gotten an other one. Since fall 2008 I have being working a series of temporary jobs and am still doing so even in August of 2012. The lack of FT perm jobs in my part of Alberta is shocking after all this time. If I was younger and had a trade I would likely be working steady.
We have $4,000.00 left of our savings and have not been able to rebuild it due to lack of FT work. Some weeks I have worked only 14 hours needless to say we have significantly cut back on everything in order to survive. Damn good thing we have no debt.