More than funding, you need analysis and planning

Part 1- Emergencies

All too often, we put a huge emphasis on “saving”. This is particularly true in the PF blogosphere.

We need to “save” for emergencies. We need to “save” for retirement.

Although both are definitely true, one crucial component is often completely overlooked: analysis.

That’s how we end-up with arbitrary statements like: ” You need at least $ 10 000 in your emergency fund” or “you need $1 million to retire comfortably”.

Although I personally don’t believe a line of credit is an emergency fund per se, I also don’t believe in hoarding tons of cash in an account that will earn at most 1.30% – This is with Maxa Financial BTW-.

So, I have a combination of both cash and credit. More importantly, I’ve analyzed my personal situation and done some planning.

Potential job loss

Because of Covid-19, I had to go back to a regular job, as my business venture was unable to take off. I found a job in about a month, as I am both qualified and experienced. Accounting is also a sector with very good prospects.

Going back to a regular job was actually part of my emergency plan. I currently have no plan to be self-employed for the foreseeable future, even after Covid is eradicated.

So what if I lost my current job? Well, first of all I wouldn’t “voluntarily” loose it. I don’t intend to do anything bad enough that would get me fired with cause.

If I were to be laid off, I would receive some severance; and then I would be eligible for Employment Insurance (E.I. in Canada).

If I decided to voluntarily quit my job, I would ensure I have another one lined-up.

Potential illness/injuries

I am fortunate to live in Canada, where healthcare isn’t dependent on your income or on private insurance companies.

I’ve also had employer-paid extended healthcare and disability insurance for the last 8 years. These are the kind of benefits I would also look for in a new job.

Should I be injured in car accident or at work, I am covered by both ICBC and Worksafe BC.

Other emergencies

Condo: my condo building is 10 years. The contingency fund is high enough to handle big repairs. The depreciation report indicates the building is in good condition. As far as my condo itself, I’ve never spent more than a few hundreds on repairs and maintenance. And if there were a fire or other disaster, I have home insurance.

Car: my 2013 Mazda 2 has given me very little trouble so far. It’s unlikely that repairs would be of a significant amount. If they were, I would probably buy a new car. The vehicle is insured for repairs due to an accident.

Potential lawsuits: welcome to North America, where you can be sued for everything and anything. I have third-party liability insurance with ICBC and Square One, my home insurer.

Family: If one of my parents had an emergency, I would have no problem charging the cost of the plane ticket to go to France on a credit card.

It takes years to save thousands

Unless you’re a high-earner – in that case, you probably don’t need an emergency fund-, it will take months and years to save 3 to 6 months of living expenses, or even $ 10 000.

You also need to replenish your emergency fund, should you use it. Both can be time and money consuming.

Final word

Don’t get me wrong. I am still a proponent on having some money saved in an emergency fund. A line of credit can certainly cover the initial cost of the emergency, but you need to pay it off at some point.

What I’m saying, however is that you need to analyze your personal situation first, to determine the amount you realistically need to save.

You may decide you don’t need an emergency fund. And that’s OK too!

I know I wouldn’t be comfortable with this. I decided to maintain a float of $ 5 000.00.

Stay tuned for part 2 . I’ll discuss retirement planning.

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