This post was written by the former Estonian Credit Union, now Northern Birch Credit Union.
Written by Heili Orav, Manager, Wealth & Estate Services
Recent reports have shown that the majority of Canadians would have difficulty coming up with $400 in a pinch. From my own recent experience of the unexpected breakdown of my heating system, that is a tenth of what I needed to get a new heating system. Whether it is a broken tooth, a busted tire or a few days off work to care for a sick child or parent, there is seldom an ideal time for these things to happen. I definitely was not thinking “Oh, I have a nice $5,000 emergency account, I can afford to pay for a new heating system right now” I was thinking, “noooooooooo, ugh, this sucks, so much for travelling this summer.” Instead I will be start replenishing that emergency fund that Poof! Just disappeared.
An emergency fund is key for everyone, but how much one needs to save can vary. One rule of thumb is 3 times your monthly income, which can be difficult. As some people’s income comes in ebbs and flows, that may not be good enough, or realistic. I feel a better rule of thumb is roughly 3 times your monthly expenses. This will cover the basics to keep you afloat for a while. It won’t necessarily cover really big expenses, but it will keep things running on a very basic level. There are a few other factors that can affect how much you should save: do you have had a leaky roof and live in a pretty old house? Is your car running on fumes most of the time? Do you have a job that involves mostly short term contracts, get big commissions sporadically or the hours can vary a lot week by week? Do you have a kid that is growing like a weed and seems to need new shoes every other week? Then you may need to start saving a little – or a lot – more.
So that’s the Why. What about the How? It may look like a daunting task, but even starting with a little and having it grow is helpful. Although not all of these tips may work for you, adopting even a couple may help you with your goal. Here are a few ideas to consider:
- Set aside $10 from each pay-cheque and have it go directly into a high interest savings account, such as ECU’s premium savings. We can easily over the phone set you up, or you can do so yourself through online banking.
- Sign up for our Save it Up program either over the phone or in person and round off each ECU member card point of sale purchase to the next $1, $5 or even $10 and have those funds go into your higher interest account.
- Open more than one savings account for different purposes, or utilize your existing accounts differently (or with purpose). Our investment specialists are happy to work through this with you.
- If you are in the habit of a Tim’s or Starbucks or whoever coffee each day, choose one day that you put the price of one coffee into the high interest savings account. Yes, it may only be $1.05 during McDonald’s coffee promotion time, but it all adds up.
- Round off any cheque or automatic deposits made into your account, and have the odd sums go into the high interest account (for example, if your friend e-transferred you $236.47 for some bill, transfer $1.47 or $6.47 into high interest savings).
- Each time you buy something you feel is nonessential and perhaps “indulgent,” save an equal amount in your savings. These may be something small, like a latte you just really wanted to have, or something bigger, like the upgrade on that phone (and perhaps not the whole amount of the phone, but the difference you spent for that upgrade).
- Unsubscribe to a few email feeds that may only tempt you to buy when you don’t really need to. When you are looking for something specific, do your research at that time for the best deal or sign up for the best feeds then.
- If you are disciplined and have really prioritized savings, give yourself a time requirement before you shell out for purchases. A small purchase? Give it 15-30 minutes, see if you still want it. Medium purchases like a new pair of jeans? Give it 2 weeks. Large purchases like a new phone or tablet? See how you feel in a month. If you spent the entire month researching, and have finally decided and are STILL thinking about it, great. You’ll feel like it’s a reward! Not so interested? You just saved yourself from spending a lot for something that probably was not worth it
- One day a week, challenge yourself to a “no spend” day. Clear out the pantry and fridge (a lot of food goes to waste because we forget about it), go for a walk, take advantage of free events in your city or town, go to the library… for one day.
- If you are really good and found the above not too bad, bump that up to two days….or more!
- If you are already on a pretty tight budget, think about how much TV or internet you really need – maybe even a temporary break (or “suspension of service”) could do your wallet as well as your mental well-being a lot of good.
- If you really need help saving, sometimes it is best to make your variable expense spending – your “extra money” – in cash. It can make a big difference in a how much spend when you actually look at and feel your money. Virtual cash is easy and always abundant; it just magically appears! Sadly your actual income does not, and when it’s out, it’s out. Our brains have a funny tendency to feel the emptiness of a physical thing a lot more than the emptiness of the virtual thing. Maybe you only do it for a while, maybe you keep it up, that’s up to you.
If you suspect a rate hike and have a variable rate mortgage or your mortgage is coming due, already saving a little more will put you in a better position to weather a rate hike should it come, and hopefully by then, you’ll have already built up an emergency fund in the meantime. If there is no hike, fantastic, you can then redirect those funds into additional TFSA, RESP or RRSP contributions!
Finally, this is by all means not a comprehensive list. . If you have a good tip, please feel free to share with all of our members in the comments!
Written by Heili Orav, Manager, Wealth & Estate Services