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Do I have enough emergency savings?

Many Canadians truly don’t want to think of that question. However, most financial experts suggest you have at least three months’ salary in your emergency fund.  For an individual with monthly take home pay of $4,000, your emergency fund should be at least $12,000.  Having an emergency fund means one less thing you will need to worry about in the event you’re facing a medical emergency, loss of job, unforeseen car repairs or any other unexpected event. It allows you to continue managing your finances and debt under challenging circumstances.

A CIBC poll conducted by Harris/Decima showed that 45 per cent of Canadians do not have an emergency savings fund.  This could lead to cashing out RRSPs or other retirement savings or taking on additional debt in order to make ends meet.  Truthfully, until you’ve experienced the challenge of unexpected expenses, it may be difficult to fully grasp the importance of having an emergency fund set aside. More than half of Canadians have less than $10,000 set aside for emergencies according to a Bank of Montreal study. In order for these “emergency funds” to truly remain as emergency funds, most of us will have to place them aside in a separate savings account.  This way there is a psychological barrier between your day to day living account and your emergency spending account.

Of course, a starting point in knowing how much you will need is to know your average monthly living expenses – not including the fun money you spend, the money you wouldn’t spend if you didn’t have it.  When calculating your monthly living expenses you’ll want to include costs such as your child’s tuition, any debt payments you need to make on a monthly basis as well as any other expenses that would have to be covered if your income was interrupted. This number shouldn’t result in any surprises. It’s important to know how much money flows through your household budget each month. Quite often, however, when we look closely at our budget, we are surprised at where our money actually goes. Almost one quarter of Canadians live paycheque to paycheque.

Ask yourself the question “how difficult will it be to replace my existing income?” If you answer “Easy – I could quickly get another job with similar pay” or “Average – I’m well qualified for many jobs but know it may take time to find a new one” or “Difficult – jobs in my field and salary level are limited or competitive” or “Very difficult – I lack the skills required in today’s job market and it will take some time to find a position at comparable pay”, you will be closer to knowing how much money you may need to tide you over.  Managing your debt when you’ve lost your job can quickly become difficult.  It is crucial, however, to continue to pay at least the minimum amount on every debt so that your accounts remain in good standing and you don’t damage your credit score.  If the loss of employment is extended and you simply are not able to continue to make ends meet and you’ve exhausted all other avenues it may be time to meet with a Trustee in Bankruptcy.  A Trustee will review various debt relief options that are available to you.  There are a number of simple strategies you can employ that will help with debt.

As we near the end of this year and look ahead to 2016, there’s no better time to re-examine your personal finances. Are you sticking to your household budget? Are you managing debt effectively? Are you able to survive a financial emergency?

Do you find it challenging to put money aside for a financial emergency? Share your concerns and join the conversation at #CountMeInCA and #LetsTalkDebt

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