Saving simply means spending less than what you earn, and keeping the extra for future expenses.
Financial emergencies happen to everyone. It could be your pet swallowed a chicken bone and needs a procedure; or your furnace or air conditioner died on the coldest/hottest day of the year; or your friend is getting married and you were asked at the last minute to be a bridesmaid/groomsman and there are gifts and bridal party expenses you weren’t counting on; or you get injured in a car accident and can’t work for a month. The possible list of financial emergencies is as long as your imagination. That is why having an “emergency fund” is so important.
Building up and maintaining an emergency fund is the first priority for “savings”. The money should be held in a separate bank account or investment account and specifically earmarked for emergencies. The amount you should hold is somewhat personal, but it should be sufficiently large that any one of the unexpected expenses listed above could be covered by the amount held in your emergency fund. Often this rule of thumb is used: three months of regular expenses including rent, utilities, groceries, insurance costs. So, if you can live on $2,500 per month, your emergency fund should be $7,500. If you have to dip into it, you need to build it back up again.
Having the emergency fund means not having to use your credit card with exorbitant interest rates to cover the unforeseen expenses or interruptions in employment. Using your own money instead of credit is much less expensive, and also much less stressful.
You have now completed the first section of the Action Financial Group Orientation Series. You have covered the basic concepts of Saving, Investing, Budgeting, and Emergency Funds. You can always refer to our website www.actionfinancialgroup.com to review these topics.
This information has been prepared by Karin Rimnyak who is an investment Advisor for iA Private Wealth. Opinions expressed in this email are those of the Investment Advisor only and do not necessarily reflect those of iA Private Wealth. iA private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates.