Above all, do you need an emergency fund?
I begin with the obvious, there are several defendants of the solution "Line of Credit" or "equity line of credit"; these people do not have an emergency fund and does not advocate the utility have as their basic argument is that the money that "sleeping" in an emergency fund yields nothing. If a blow they happen because make no mistake, the blows come to everyone, they mostly use their line of credit, since the rate is usually (but not always) much lower than that we can have on a credit card. All their funds are invested. With this method, if you have an emergency simply cover the credit immediately and then repay your debt as soon as possible with your income to avoid paying too much interest. If necessary, you can sell equity to pay down. Honestly it's not a bad idea, again depends on your personal situation. I certainly do not recommend it if you do not have a steady job for example, if you do not have assets or if you do not, of course, access to credit
I begin with the obvious, there are several defendants of the solution "Line of Credit" or "equity line of credit"; these people do not have an emergency fund and does not advocate the utility have as their basic argument is that the money that "sleeping" in an emergency fund yields nothing. If a blow they happen because make no mistake, the blows come to everyone, they mostly use their line of credit, since the rate is usually (but not always) much lower than that we can have on a credit card. All their funds are invested. With this method, if you have an emergency simply cover the credit immediately and then repay your debt as soon as possible with your income to avoid paying too much interest. If necessary, you can sell equity to pay down. Honestly it's not a bad idea, again depends on your personal situation. I certainly do not recommend it if you do not have a steady job for example, if you do not have assets or if you do not, of course, access to credit
In these cases, you definitely need an emergency fund.
The rule of thumb, one on which everyone is general agreement is to put the equivalent side of 3 to 6 months salary, well protected and ready for any eventuality. Of course, this is just a rule of thumb; the size of your emergency fund is supposed to be based on your spending, not on your income, and some use this logic to determine the amount to be set aside. I'm assuming that one should always spend less than you earn therefore logically if you put 3 to 6 months of salary aside it should preserve its financial security for a minimum of 3 to 6 months. Of course, if you spend more than you earn, you should instead address the situation before considering setting up an emergency fund.
Personally my emergency fund, when I worked for wages, was $ 20,000; we must remember that I am a single mother with two children. Now that I have my accounting company advised me to divide it by 2 since this is my company keeps the money. So I put the $ 10,000 surplus on my mortgage. This example shows that each case is different.
The primary purpose of an emergency fund
The fundamental objective of an emergency fund is to help you out if you lose your job. However, the emergency fund may also cover other financial contingencies - such as marmots arsonists who can destroy your garden shed for example, or perhaps less unpredictable, your washing machine or fridge that decide to retire without you see or notice to you. This fund is there to give you time to breathe, to make the necessary adjustments when suddenly a gap is created between your income and expenses - this allows you to be so close a loss of income during a given period, or reduce expenditures to help you work until your situation improves.
Basic factor
The basic factor in the calculation is actually your income after taxes a month. As we assume that you spend less than you earn, this includes by default a small margin.
The size of your emergency fund ultimately depends on your own personal and financial situation. Here are some tips that should help you in its estimation:
So how many months?
The basic rule is three to six months because in general it is about the time it takes to find a job - and the downright rude if it fails, c is the estimated time it takes to readjust to its new life settings. So three months is really big because after this minimum period, if you have not managed to replace you, you should logically find yourself in trouble. Finally, it is an excellent start. From personal experience I know it is difficult to set aside money without spending it, just to prepare for the unexpected.
As to consider the possibility of having more than six months in an emergency fund ... at the risk of repeating myself, everything again depends on the type of personality you have, the type of life you lead but you have to money in such funds and the less you have to invest. You must choose a middle ground. After all an emergency fund is supposed to protect against situations that should happen rarely.
The easiest way to proceed to determine the number of months to put aside is to opt for the one I used it myself, that is to say, to aim for a 6-month target funds, and then , once achieved, to make some adjustments if necessary. Who can do more can do less, the opposite is not true.
This will take you some time to get there, in my case two and a half, but if you pay yourself first and if you do not spend in frivolities, at least until your fund is established, you will see that it will still be faster! Above all, you will be very proud of the result! The goal is to start today if you do not have one!
Adjust downward
You can adjust the number of months down if you have:
Other income, for example if you are a couple and your spouse works - and it is not likely to become unemployed at the same time as you. My neighbors, for example, worked for the same company that was going through waves of layoffs. Let's say it's a particularly unpleasant situation. It is a sacred bad luck but it can happen. Similarly, if you have investment income, a side job, an allowance, alimony, in short if you have funds other than your salary.
Significant liquidity. For example if you have a nice sum in a mutual fund or brokerage account, then you will not need a large emergency fund. Sure assets that are not liquid such as real estate or vehicle, do not count.
Adjust upwards
You need to adjust the number of months upwards if you have reason to believe you may have trouble finding you another job.
Your work experience is still a bit light; you are young or you just change branch
Your current employer is the only provider in your area, it dismisses you and you have no recourse but to relocate or retrain
You work in a declining industry.
Where to keep your emergency fund
I consider this money as a financial cushion, a way to sleep soundly. I leave $ 5,000 of this amount in my account high interest ING Direct, and the other $ 5,000 in a TFSA are always at ING Direct. If a tile falls on my head I have access to the money within two days, the time to transfer funds. So I pay with my credit card I repay in full at maturity. If a check is required (as with my contractor, for example), I organize myself to it is removed as of the date the funds are available. I like to use ING Direct because the funds do not linger on my checking account, they are isolated, "hidden". There is no chance that I can use the money to go shopping.
in conclusion
There are only two valid reasons for not having an emergency fund. If you not in one of these situations I highly recommend you sit today and set up a plan to establish one. Make it a goal and take action.
All you have no money, or you are in debt. If you have a loan to pay for example, it is certain that the interest rate you could get into your account for emergency funds will be lower than the interest you pay on your debt. That makes more sense to pay off its debt first; However, even in this case, you should probably put energy and effort you climb a small emergency fund, a minimum of one month emergency fund may be a reasonable goal.
You have already placed so much money it does you would not be difficult to release the funds you need for a blow. So this was a very comfortable situation. This is not the lot of most of us, but it's actually a reality for some people, and it's good for them
In summary, you should have an emergency fund equal to your monthly salary equivalent to 3 months and preferably six months, and keep it close while being hidden to avoid temptations.
Please Share this:
The rule of thumb, one on which everyone is general agreement is to put the equivalent side of 3 to 6 months salary, well protected and ready for any eventuality. Of course, this is just a rule of thumb; the size of your emergency fund is supposed to be based on your spending, not on your income, and some use this logic to determine the amount to be set aside. I'm assuming that one should always spend less than you earn therefore logically if you put 3 to 6 months of salary aside it should preserve its financial security for a minimum of 3 to 6 months. Of course, if you spend more than you earn, you should instead address the situation before considering setting up an emergency fund.
Personally my emergency fund, when I worked for wages, was $ 20,000; we must remember that I am a single mother with two children. Now that I have my accounting company advised me to divide it by 2 since this is my company keeps the money. So I put the $ 10,000 surplus on my mortgage. This example shows that each case is different.
The primary purpose of an emergency fund
The fundamental objective of an emergency fund is to help you out if you lose your job. However, the emergency fund may also cover other financial contingencies - such as marmots arsonists who can destroy your garden shed for example, or perhaps less unpredictable, your washing machine or fridge that decide to retire without you see or notice to you. This fund is there to give you time to breathe, to make the necessary adjustments when suddenly a gap is created between your income and expenses - this allows you to be so close a loss of income during a given period, or reduce expenditures to help you work until your situation improves.
Basic factor
The basic factor in the calculation is actually your income after taxes a month. As we assume that you spend less than you earn, this includes by default a small margin.
The size of your emergency fund ultimately depends on your own personal and financial situation. Here are some tips that should help you in its estimation:
So how many months?
The basic rule is three to six months because in general it is about the time it takes to find a job - and the downright rude if it fails, c is the estimated time it takes to readjust to its new life settings. So three months is really big because after this minimum period, if you have not managed to replace you, you should logically find yourself in trouble. Finally, it is an excellent start. From personal experience I know it is difficult to set aside money without spending it, just to prepare for the unexpected.
As to consider the possibility of having more than six months in an emergency fund ... at the risk of repeating myself, everything again depends on the type of personality you have, the type of life you lead but you have to money in such funds and the less you have to invest. You must choose a middle ground. After all an emergency fund is supposed to protect against situations that should happen rarely.
The easiest way to proceed to determine the number of months to put aside is to opt for the one I used it myself, that is to say, to aim for a 6-month target funds, and then , once achieved, to make some adjustments if necessary. Who can do more can do less, the opposite is not true.
This will take you some time to get there, in my case two and a half, but if you pay yourself first and if you do not spend in frivolities, at least until your fund is established, you will see that it will still be faster! Above all, you will be very proud of the result! The goal is to start today if you do not have one!
Adjust downward
You can adjust the number of months down if you have:
Other income, for example if you are a couple and your spouse works - and it is not likely to become unemployed at the same time as you. My neighbors, for example, worked for the same company that was going through waves of layoffs. Let's say it's a particularly unpleasant situation. It is a sacred bad luck but it can happen. Similarly, if you have investment income, a side job, an allowance, alimony, in short if you have funds other than your salary.
Significant liquidity. For example if you have a nice sum in a mutual fund or brokerage account, then you will not need a large emergency fund. Sure assets that are not liquid such as real estate or vehicle, do not count.
Adjust upwards
You need to adjust the number of months upwards if you have reason to believe you may have trouble finding you another job.
Your work experience is still a bit light; you are young or you just change branch
Your current employer is the only provider in your area, it dismisses you and you have no recourse but to relocate or retrain
You work in a declining industry.
Where to keep your emergency fund
I consider this money as a financial cushion, a way to sleep soundly. I leave $ 5,000 of this amount in my account high interest ING Direct, and the other $ 5,000 in a TFSA are always at ING Direct. If a tile falls on my head I have access to the money within two days, the time to transfer funds. So I pay with my credit card I repay in full at maturity. If a check is required (as with my contractor, for example), I organize myself to it is removed as of the date the funds are available. I like to use ING Direct because the funds do not linger on my checking account, they are isolated, "hidden". There is no chance that I can use the money to go shopping.
in conclusion
There are only two valid reasons for not having an emergency fund. If you not in one of these situations I highly recommend you sit today and set up a plan to establish one. Make it a goal and take action.
All you have no money, or you are in debt. If you have a loan to pay for example, it is certain that the interest rate you could get into your account for emergency funds will be lower than the interest you pay on your debt. That makes more sense to pay off its debt first; However, even in this case, you should probably put energy and effort you climb a small emergency fund, a minimum of one month emergency fund may be a reasonable goal.
You have already placed so much money it does you would not be difficult to release the funds you need for a blow. So this was a very comfortable situation. This is not the lot of most of us, but it's actually a reality for some people, and it's good for them
In summary, you should have an emergency fund equal to your monthly salary equivalent to 3 months and preferably six months, and keep it close while being hidden to avoid temptations.
Please Share this: