Emergency Funds - Millionaire on the Prairie

A Gift For You – A Step-By-Step Plan for Your Money in 2024!

There’s only 1 week left until we say “Welcome!” to 2024. My gift to you this holiday season is a step-by-step plan for your money. As always, take what you want and leave the rest.

First off, I want you to open atleast 3 bank accounts. Each of these will have a very specific purpose. You can add more if you want, but you need atleast three.

First Account – Your Chequing Account

This is the account that will be the center of your financial life. You will deposit your paycheque money into this account. You will deposit your tax refunds into this account. If you get birthday money, it will go into this account. In case I’m not being clear, all of your money will flow into this account.

Next, all of your automatic transfers will flow out of it. These are the transfers for plumping up your emergency account and for sending money to your investment accounts, aka: the Care and Feeding of Future You accounts.

Once the automatic transfers have been completed, you can spend the remaining money in your chequing account however you see fit. As you know, I’m not a fan of budgets.

If you see a need to budget whatever’s left over after your transfers have gone through, then more power to you.

Second Account – Your Savings Account

This account will hold your emergency fund. These are the funds that you will rely on in a true emergency, which I’ve defined as the loss of your income. If your paycheque goes away, then you will use the money in your emergency fund to pay for your life until such time as you get another paycheque.

How much should you have in your emergency fund? Well, I’m quite traditional on this subject. I think you should have between 6-12 months of take-home pay in your emergency fund. If you can replace your paycheque quickly, then it’s okay to have closer to 6 months of take-home pay. However, if it would take you longer to replace your income, then aim for the higher amount.

Don’t expect that building an emergency fund is going to be easy or quick. It’s simple to create one. After all, the only thing you need to do is set aside money from every paycheque and then not spend it. However, as we can all agree, it’s not always easy to keep our mitts off a growing pile of money.

Easy or not, you still need to do it. Set up an automatic transfer from your chequing account to your savings account. Make it for $100 (or whatever amount you can reliably handle) and send that money to your savings account every time you get paid. The higher the amount, the faster you fill your emergency fund.

Trust me when I tell you that absolutely no one in the history of the world has ever complained about having too much money during an emergency.

Third Account – Your Investment Account

This is the account where you’re going to invest money for Future You. As I’d mentioned above, Future You is still going to want food everyday and warm place to sleep once you’ve stopped working. You owe it to your future self to start investing for tomorrow.

By now, you know the drill. Set up an automatic transfer from your chequing account to your investment account. I would advise that the transfer amount be atleast 20% of your net, take-home pay. If you’re under 25, then it can be 15%. And if you’re older than 25, aim for 30%. Again, if you can’t hit these targets right now, then set the automatic transfer amount for whatever you can afford. Then, work up to the target percentages as your income grows and as your debts are paid off.

You can hold your investment account with your current financial institution, with an online brokerage, or with an investment company. In the interests of transparency, I hold my accounts with an online brokerage where I do a single trade, once a month, to buy more units in my exchange-traded fund of choice.

Once your transfer goes through, do not leave the money sitting around. Invest it! The only way to make your money grow is to invest it. I recommend exchange-traded funds for the following reasons:

they’re less expensive than mutual funds and offer the same level of diversification;
they’re way less risky that picking individual stocks;
they allow you to invest in hundreds of companies at once and in different countries; and
they permit you to benefit from dividend re-investment plans immediately.

When you go to buy exchange-traded funds or mutual funds, pay attention to the management expense ratio. You should never be paying more than an MER of 0.40% without a damn good reason. MERs paid to someone else are money that is leaving your pocket. The higher the MER, the less money that you have invested. The MER shouldn’t be the only reason that you pick an ETF or a mutual fund, but it should be a factor that’s given a lot of weight when you decide where to invest your money.

Next, your ETF or mutual fund should have a DRIP feature. The dividend re-investment plan is one of the tools that’s going to help you stay invested. You see, at first your annual dividends are going to be very small. Think dollars… or cents. But within 2-3 years, you’re going to be receiving hundreds and then thousands of dollars on an annual basis. With a DRIP, those dividends are automatically re-invested while you, Dear Reader, are spared the temptation of spending them. The dividends don’t land in your investment account. Instead, they promptly re-invested before you ever get a chance to consider withdrawing them and spending them.

Finally, keep investing no matter what. The pandemic taught many of us that the stock market can plunge deeply within the span of a few weeks. And 2022 was no picnic either for investors. Even today, the Talking Heads of the Media are expending a lot of chinwag on “the recession”.

Listen.

No one knows when the recession will get here, how long it will last, nor how bad it will be. The only thing that they can all agree on is that it won’t last forever. When the recession is over, the stock market will start going up again. It’s what the stock market does, and what it has always done. If you’re not invested, then you won’t benefit from the stock market recovery.

So invest. And stay invested. Do not stop contributing to your investment account. Transfer your money to this account and continue to invest your money so that it can grow. Future You will thank you for doing so.

Additional Accounts – Your Sinking Funds

These accounts are where you will accumulate funds for both un-sexy stuff (car insurance, annual property taxes) and irregular payments that make your life better (travel, theatre subscriptions, concerts, fine dining, etc…)

In short, you will prioritize your short-term goals and set aside money to pay for them. I can’t tell you how much easier it is to pay may insurance premiums when I know that there’s money sitting in a bank account just for that purpose. The same goes for my annual subscription to Broadway Across Canada, my vacations, my property taxes, etc, etc, etc… You get the drift. If a certain item or service has made it onto my priority list, then I have an account set up to pay for it.

You should do the same. Sinking funds force you to allocate money to the things that are most important to you getting closer to your dream life. And one of the keys to a dream life is not having to worry about how to pay for the things that you want.

That’s the Plan.

Those are the steps. Everything else is a detail. I admit that it’s not glamorous, nor particularly snazzy, but I can assure you that this plan works. I’ve been following it for most of my adult life, and I’m pretty satisfied with the outcome. I’ve made mistakes along the way… many mistakes… but sticking to this plan for my money has tempered their impact on my financial life.

Your Emergency Is On Its Way – Prepare Now!

“I have too much money during this time of emergency!”
No One Ever

If you’ve been paying any kind of attention, you’re no doubt aware that natural disasters have touched many people’s lives in fundamental ways. Threats of fire forced the evacuation of the city of Yellowknife in the summer of 2023. A wildfire in Maui destroyed the city of Lahaina, on the island of Maui. People in both cities are displaced and trying to figure out their next steps. I can’t even begin to imagine the stress and anxiety that they are feeling. However, this blog is about money and protecting yourself for the negative consequences that come with not having any.

Being evacuated from your city is an emergency. It is precisely the kind of situation for which one builds and maintains an emergency fund. The people fleeing from Yellowknife had to convoy along a 12-14 hour trip to next major center. That wasn’t free. They had to pay for gas. Those without family or friends had to pay for accommodation if they weren’t willing to stay in the shelters. With only hours to flee, there wasn’t sufficient time to think of everything. Once in a safe location, they had to pay for food, clothes, toiletries, and pet food. It’s doubtful anyone had budgeted for an evacuation that month. For those working hourly jobs, there’s no more income until they go back to work. The emergency fund exists to cover these costs.

Right now, you should be assessing your emergency fund. Ask yourself some hard questions. Is my emergency fund enough to sustain me if I couldn’t work for a month? If I had to flee from a natural disaster, do I have enough to cover my expenses until I can get back on my feet? And if I don’t, then what am I doing to build my emergency reserves?

Unless you’re one of those very fortunate people who have a year’s worth of expenses tucked away somewhere, you should be adding to your emergency fund every time you’re paid. Even if it’s only $10, $25, $50, add it to your fund and leave it alone. When the day comes that you need to rely on those reserves, you’ll be very happy with yourself that the money is there waiting for you.

In my opinion, emergency funds are not “dead money” sitting in a bank. These aren’t the dollars that are meant to fund your retirement, or your short-term goals. You’re not looking to invest your emergency fund to earn a big return.

Your emergency fund is your safety net.

It is there when your income disappears. It exists so that you don’t go into debt when the universe lobs a grenade that blows up your life. Even if you have insurance and you’re going to be reimbursed, insurance companies sometimes take longer to pay than you may like. They might even try to fight you and you may have to appeal their decision on what is covered and what isn’t. Your emergency fund pays for the necessities while you get yourself re-established.

Even after becoming debt free and building my investment portfolio, I still contribute to my emergency fund. My goal is to have a year’s worth of necessities socked away. If anything goes too terribly off-course, I want the comfort of knowing that I can survive for a year. I’ll be able to make decisions without the pressure of needing to earn money immediately. My emergency fund offers me peace of mind. It gives me time to breathe and to think carefully before making my next move.

There’s no reason to wait. If you have an emergency fund, contribute to it from every paycheque. Every dollar counts. The more you can stuff away during non-emergency times, the better. If you can afford it, save an amount equivalent to your age. Increase the amount when you can. Start your emergency fund today if you don’t already have one. Opening an account is as simple as clicking a few links on any bank’s website. Automatically transfer money from your chequing account to your emergency fund.

There’s an emergency headed your way, but you can’t know when it will arrive. Today is the best time to prepare for it financially. When that emergency eventually hits, finding the money to deal with it should be the last of your concerns. Adding money to your emergency fund is entirely up to you. Choose wisely.

I’m not an expert but….

I am not certified by any governing body to tell you how to spend your money. My words of advice were earned at the School of Life, a place where all of us are students. I’m telling you this so that you realize that I’m not an expert, but I’ve still learned a thing or two. If you do what I did, you’ll do fairly well with your money over a lifetime. Here are my tips to acquiring a heavy wallet.

Don’t spend every penny you earn.

First off, I’ve yet to meet anyone who’s been harmed by living below their means. Spending less than your take-home income has no downsides, as far as I can tell. The difference between your net income and your expenses is called “savings” and savings can always be stashed away for various things.

Emergency Funds are not optional.

Secondly, life without an emergency fund is an invitation for financial trouble. There’s an emergency in your future. You simply have no way of knowing when it will show up. I promise you this though. No one in the history of the world has ever lamented about having too much money set aside to deal with the inevitable emergency. If you don’t have an emergency fund, start one immediately and set up an automatic transfer from your paycheque to fund it.

It’s going to take a bit of time to build up a decent emergency fund. That doesn’t matter – just start building it. When the emergency hits you smack in the face, you’ll be quite grateful that you won’t have to worry about the financial side of dealing with it.

Investing for Tomorrow You isn’t optional either.

Thirdly, start investing your savings. Yes – some of your saving will go to building an emergency fund. The rest of your savings should be split between your short-term, medium-term, and long-term goals.

One your most important long-term goals is how to feed, shelter, clothe, and entertain yourself when you’re too old to work. Tomorrow You still needs money to survive until the very last day of your life. The steps you take today to invest your savings will increase Tomorrow You’s chances of having a financially comfortable life once employment is over.

You need to start funding your retirement accounts – namely the Tax Free Savings Account and the Registered Retirement Savings Plan.

If you have to choose between filling the TFSA or the RRSP, my recommendation is to fill up the TFSA first. The TFSA contributions do not generate a tax refund, but the money invested inside the TFSA will grow tax-free and can be withdrawn tax-free.

Should you be so fortunate as to have sufficient money to fill both your TFSA and your RRSP, then do so.

If you still have savings After you’ve filled your retirement accounts, then open a non-registered account with an online brokerage. Invest your remaining savings to earn capital gains and dividends. The money earned in your non-registered account will be taxed every year. The upside is that the taxable rate on your capital gains and dividends will be less than the taxable rate on your earned income.

Inflation isn’t going away anytime soon.

Fourthly, inflation is running high. No one knows when it’s going to go down, so assume that things will be increasingly expensive for the foreseeable future. There are no simply answers to this problem, so my advice to you is to cook more of your own food. I love socializing over food as much as the next person. And I do sometimes yield to the incessant call of the fast food window or the food delivery app. However, inflation running at 7%-8% has forced me to be a lot more disciplined. I’m heading to the grocery store instead of tapping out an order on an app. I’m slicing and dicing, mincing and sautéing, frying and baking in my own kitchen. One of these days, I’ll even master the art of meal planning for the week instead of simply for the next 3-4 days.

My advice to you is learn to grocery shop then spend more time in the kitchen. If there’s something you want to learn to make, there’s someone on the Internet who has a recipe and a video to show you how. I can promise you that $60-$80 spent at the grocery store will yield you a ton more food than the same amount spent at a restaurant, fast food outlet, or food delivery service.

Stay out of debt

For whatever reason, our society has decided that it’s a good idea to put people into debt. The scope and manner in which any one person is able to go into debt is truly breathtaking: student loans, vehicle loans, mortgages, credit card debt, etc…

There’s no legal limit either. It’s not like there’s a law which says “No person is permitted to carry more than $650,000 of debt at any one time.”

So long as there is a creditor who is willing to extend you credit, you can dig a deep a hole as you choose. Even after a creditor stops extending you new credit, the hole still gets deeper thanks to the power of compound interest and the piling on of fees.

Do yourself a favor. Don’t go into debt. If you’re already in debt, then work very hard to get out of it.

You know those savings that I was talking about at the start of this post? Take 25% of them and throw them at your debt. You can use the snowball method or the avalanche method to make extra debt payments over and above your minimum payment.

I really don’t care, which method you choose. Just start making those extra debt payments and get yourself out of debt as soon as possible.

Again, I’m not an expert.

I’m just a person who has learned a few things about money from my own experience. I’ve also observed the financial choices and outcomes of others. Getting out and staying out of debt has done wonder for my financial life. Spending less than my net income has allowed me to set aside money for my retirement while also fulfilling most of my short-term and medium-term goals. Cooking at home has definitely contributed to a heavy wallet. My emergency fund helps me sleep well at night.

Even though I’m not an expert, some of these tips might help you too. Take what you need – leave the rest.

Time for a Mid-Year Check-up!

Tempus fungit. It’s a Latin phrase that means “time flies”. Truer words have never been spoken, in any language. It’s already the middle of 2022. How is your money doing? Are you on track to meet your financial goals? If you don’t know the answers to these questions, then it’s time for a mid-year check-up.

Emergency Fund

You need not share your answer with the class. However, you definitely have to be honest with yourself. Have you had to dip into your emergency fund this year?

If yes, then I hope you’re taking steps to refill it. Trust me when I say you’ll have another emergency at some point in the future. Emergencies don’t do your the courtesy of giving you fair warning. They happen unpredictably so you need to replace any monies that you’ve used from your emergency fund this year. Make it simple on yourself. Set up an automatic transfer so that you’re sending $50 or $100 (or whatever your budget will allow) to your emergency fund every time you get paid. If you already have an automatic transfer in place, increase it by $50-$100, or by whatever amount your budget will allow.

If no, then add another $1000-$3000 to your emergency fund. In case you’ve been living on another planet for the past few months, allow me to be the first to say “Welcome back! We missed you! Oh, and you should know that inflation is up 7%-8%. This means that your emergency fund needs to be a little bigger since paying for your emergency just got a little bit more expensive.”

Achieving Your Goals

Cast your mind back 5.5 months to early January. What were your financial goals for 2022? Are you on track to achieving them?

Assess your spending for the past 6 months and determine if your money choices got you closer to, or further from, meeting those goals. Congratulate yourself if you’ve met some or all of those goals already. You did the work so you deserve some recognition of your efforts.

On the other hand, maybe you haven’t been able to meet your financial goals. Do you have any idea why? To answer this question, you must assess your spending to date. The most efficient way to complete this assessment is to review your expenses.

I hope you’ve been tracking your money, whether on a spreadsheet, via an app, or with a pen & paper. Myself? I’m a spreadsheet person. The method really doesn’t matter. Tracking your expenses clarifies whether your spending habits are aligned with your priorities.

And if you haven’t been tracking your expenditures until now, then you should start. Every time a nickel leaves your wallet, record its destination. No one has ever been harmed by knowing where their money goes. Information is power. Seeing a written record of where you’ve spent your money will assist you to align your money with your most important objectives. At the very least, you’ll be able to determine if you’re sacrificing your goals by spending money on that which you’ve decided is less important to you.

You can only spend each dollar once – either it goes to your goals or it goes to your not-goals. The choice is yours.

Check your subscriptions

Summer is here. And it will be gone far too soon. Maybe you’re spending more time outside. If that’s the case, maybe you want to eliminate some of your subscriptions for the next few months. I cut the cord several years ago, but I continue to use other streaming services. Now that I’ve got my garden going, and have many little chores to attend to after work, I could probably cut those services from my budget for a few weeks. It wouldn’t hurt me. I’m very, very, very confident that the service providers will happily take my money in the fall when I move back inside.

You know yourself better than I do. Could you live without some of your subscriptions for a few weeks? No one is telling you to give them up forever. I’m simply suggesting that you live your life without them for a few weeks while you’re doing other things that don’t involve staring at a screen and scrolling endlessly for something to watch. Again, it’s your money so you get to decide how to spend it. I’m simply nudging you to consider whether it’s a waste of money to pay for those subscriptions during the summer if you’re going to be outside soaking up the nice weather while it’s here.

Cut yourself some slack.

No one is perfect. And this goes doubly so for money decisions. You’re doing the best you can with what you know. There are other things going on in your life and they’re probably taking up a lot of your time, energy, and attention. It’s not always easy to pay attention to your money, even though you know it’s important. I get it. I’ve been there too. However, I promise you this – when you know better, you do better.

This mid-year check-up is meant for you to identify any areas that might need some effort. If you’ve veered off-path, then you can course-correct sooner rather than later. Make tweaks as needed, then go back to the business of building the life that you truly want for yourself.

Emergency Funds have to keep up!

A few weeks ago, I wrote about how inflation is a money-eater. I stand by that statement. Inflation makes everything more expensive. My cost of living is going up but my salary is staying the same. In light of inflation’s impact, I’m tweaking my emergency fund to account for it. In short, my emergency fund needs to be bumped up by the rate of inflation.

Back in the day, I devoured the idea of having $1,000 set aside for emergencies while I paid off debt. It’s one of the Baby Steps espoused by Dave Ramsey in his book The Total Money Makeover. Twenty years ago, I had student loan and vehicle debt. Once those loans were paid, I worked hard to save up 6 months of money in an emergency account.

Eighteen years ago, when the book was first published, $1000 was sufficient to cover a month’s worth of my fixed expenses. Today, that same amount just barely covers my variable expenses. Today, I’d still have to find another $1000 – $1500 to cover my fixed monthly expenses. Keep in mind, that’s without the burden of a mortgage payment. In my circumstances, a $1000 starter emergency fund is certainly better than $0 but it’s definitely not enough to cover my bills for an entire month.

It strikes me that while the idea of having $1,000 on hand as a starter emergency fund is a good one, the amount is too bloody low. I paid off my debts 20 years ago. According to this handy-dandy inflation calculator, the same $1,000 from two decades ago is worth $1,503.76 today.

It’s no secret that I’m a fan of the emergency fund. In my opinion, it’s good to have money set aside for when the sh*t hits the fan. You owe it to yourself to make sure your emergency fund grows in lock-step with inflation. This particular pool of money won’t help you as much if it’s insufficient to cover your bills when faced with that inevitable emergency.

You know your own numbers far better than I ever could. And if you don’t know your numbers, then it’s time to start tracking them. Having a handle on your money is an integral part of self-care. When your fixed monthly expenses go up, then your emergency fund must be adjusted accordingly. Imagine that you’ve suddenly lost your source of income. The reality is that you’d still have to pay for your shelter, your transportation, your utilities, and your debts. This isn’t the time to rely on debt. Streaming services, wine subscriptions, cable, gym memberships! All of your variable costs should be on the chopping block. Reduce or eliminate these expenses until your income is solid again. They shouldn’t have too much impact on your emergency fund.

So when you hear that inflation is going up by 4% annually, do what it takes to boost your emergency fund! Even an few hundred dollars will help. I’m not saying that you have to bump it up all at once. What I am suggesting is that you squirrel away $5, $10, $20 into your emergency fund every chance you get. Those little dribs and drabs will add up over time. Trust me when I say that no one ever regrets having money set aside during an emergency.

Again, your emergency fund has to keep up with inflation. There’s no way around it. It’s your responsibility to make sure that emergency funds are in place when you need them. And if you’re going to have a starter emergency fund, please make sure that you set aside more than $1000. That amount was chosen nearly two decades ago! Believe me – it’s no longer enough to cover more than a moderately expensive car repair.

Are you doing what you want with your money?

Two thirds of 2021 are in the rearview mirror. You should probably spend a few minutes figuring out if you’re doing what you want with your money.

have you built a solid-sized emergency fund?
if you’re in a toxic work environment, have you bought horrible-boss insurance?
are you investing for the future while also living in the present?
are you meeting your savings targets?
have you forgiven yourself for making mistakes with your money?

In other words, is your money moving you closer to or further from your life’s goals?

Maybe dealing with your money is just one-more-thing, and you’re dealing with enough. I get it, really! The pandemic is lasting way longer than we’d expected. The climate change consequences are no longer something to worry about later. The impacts are being seen and felt right now, every single day, all over the world. There’s a lot going on and it’s not all good, so that might make it harder to focus on mastering money.

Be that as it may, there have always been lots of significant events going on in the world. Gues what? There always will be. However, while we’re striving to make the world a better place, you still need to put your money to work. The state of the world doesn’t absolve you of the responsibility you have to Future You.

There is a straight-forward way for amateur investors such as ourselves to invest. It’s our best bet to improve the odds that we’ll be able to live comfortably when we’re no longer sending our bodies and minds to work every day.

Allow me to share my secret with you, again. Put your money on auto-pilot! You’ve got enough to worry about and investing money for your future need not be on that list. Set it up once then let the magic of computers do the rest.

Set up an automatic transfer of a set amount of money from your chequing account to your emergency fund.
Set up a second automatic transfer to your investment account. This can also be your retirement account.
Buy units in equity-based exchange traded funds or index funds with management expense ratios below 0.25%.
Don’t withdraw money from your investment account.
Save. Invest. Learn. Repeat.
Live on whatever’s leftover after these transfers have gone through.

Doing these few things will save your bacon when the time comes. You might feel that you want to spend all of your money right now. After all, tomorrow is promised to no one and you only live once, right? There’s a certain seductive allure to that perspective. Resist! You’re going to need money for all of the tomorrow’s headed your way. You might not know how many of them you’ll get, but the odds are very good that you’re going to need money for most of them.

The bottom line is that you should be doing what you want with your money. If you’re not, figure out why and do what needs to be done to change that situation.

Unexpected Expenses & the Beauty of Savings

This week, I celebrated my birthday.

Sadly, no one told my beloved SUV. Instead, I took my vehicle to my trusted mechanic because I needed an oil change and thought that changing an air filter might assist with a little acceleration problem I’d been experiencing. Instead, my SUV walloped me with a $2,900 estimate!

That’s not an inconsiderable amount for a car repair. It turns out that my clutch is slipping. That’s the mechanic’s lingo for my clutch is not working properly and I can’t safely drive my car until this extremely vital part is replaced. Yes – I drive a vehicle with a manual transmission. Unfortunately, a clutch is only good for about 150,000kms.

So I had a decision to make. My SUV is 13 years old. Yet it only has 137,000kms on it, which means there’s 70,000-100,000kms left on the engine. I’ve been with my mechanic for 17 years and I trust him, which means I believed him when he told me that the major components of my SUV are still in good shape. The tires are good – the brakes are fine – everything else on my car is fantastic. Barring a collision, I should be able to drive my car for another 5-7 years. My plan had been to replace my car in 4.5 years.

Still, a $2,900 repair bill is not a drop in the bucket. Despite its low mileage, the Kelley Blue Book value for my SUV is between $5900 – $6100. And a quick review of Auto Trader disclosed that a similarly aged SUV with slightly lower mileage than mine was listed at a price of $7,500. However, I couldn’t in good conscious sell my SUV without disclosing that it needs close to $3,000 of repairs… so no way am I getting $7,500 for this vehicle.

And if I were to sell, then I’d have to buy… I’m not a fan of car shopping. Besides, did I mention that I love my SUV? I’ve kept it for 13 years because it’s a great little vehicle.

So, on one of my favorite days of the year, I had a decision to make. Would I repair the SUV that I loved and drive it another 5 years? Or would I sell it at a discount, let someone else drive it for its remaining life, and proceed to buy something else?

After much deliberation and consultations with trusted friends, I decided to repair my SUV. I can continue to drive it for several more years. Clutches need to be replaced, so this rather large expense is not out of the ordinary.

Some reminded me that conventional wisdom is that a vehicle should be replaced when the repair is 50% or more of its value. On the numbers, my repair bill was just shy of 50% of my SUV’s value. Others reminded me of the global chip shortage, which means that there are fewer new cars available for purchase. Still others focused on the fact that I could drive my car for a few more years once this repair was made. One person reminded me that I “could afford” to buy a new vehicle, without compromising my long-term financial goals.

At the end of the day, I chose to repair my SUV. Why?

Mainly, I couldn’t get past the fact that any buyer would have to repair the clutch. The buyer would then benefit from the additional years of driving my SUV. Whether owned by me or someone else, my SUV needs a $2,900 repair in order to run. Why shouldn’t I be the person to benefit from the remaining years of life in my vehicle?

Besides, I abhor shopping for vehicles. There’s nothing on the road today that is an absolute must-have for me. As I mentioned above, I have loved my SUV from the minute I bought it 10+ years ago. I’m not yet ready to give it up.

With age comes wisdom.

Allow me to assure you of the following bit of financial wisdom. If you own anything with wheels or a motor, there will eventually be a big expensive repair. There is no telling when that day will come. You need to prepare for that day by having cash set aside in a savings account.

When I heard $2,900, I didn’t waste a second wondering how I would pay for the repair. Fortunately, I could jump right into the question of whether to keep or sell my vehicle. Thanks to years of funding my emergency fund and various sinking funds, I have the money on hand to pay for this expense. The only question I seriously pondered was whether I should.

Unexpected expenses are a fact of life. They can be financial zingers that throw your whole budget into disarray. They force you to re-prioritize how you allocate money and whether you allow yourself to go into debt. The first rule of handling unexpected expenses is to have savings. The second rule is to replenish those savings after you’ve used them.

Unless you already have one in place, set up an automatic transfer from your day-to-day chequing account to a savings account that is strictly dedicated to handling the unexpected. I would suggest $10 per day, which is $70 per week, or $3,650 per year. You know your budget better than I do, so maybe you can only do $5 per day ($1,825/yr) or maybe you’re fortunate enough to do $20 per day ($7,300/yr). The higher your per diem, the faster you build up your ability to handle life’s unexpected expenses. Pick a target amount for your savings account, then transfer your per diem amount into this account until that target is met.

The beauty of savings is this – they always curb the impact of unexpected expenses on the rest of your financial priorities. So while a $2,900 car repair bill was not on my birthday wish list, I’m fortunate to be able to take it in stride. Happy birthday to me!

Emergency Funds – Income vs. Expenses

“Wow! I had way too much money to tide me over when I was unemployed and had bills to pay!”
– said No One Ever

By now, you may heard that it’s best to have 3-6 months of income in your emergency fund. You know your finances better than I ever will, but it seems to me that it’s better to have 6-9 months of expenses socked away for the inevitable rainy day.

Did you see what I did there?

If not, go back and re-read it… there you go! See? In my world, income does not equal expenses when it comes to funding your emergency fund.

The Majority

For a good number of people, the words are interchangeable. It matters not whether they’re saving 6 months of income or 6 months of expenses because the monthly income and monthly outgo are the same number. And who are these good folks? Well, they are the ones who spend every penny that comes into their hot, little hands. They’re people who literally feel money burning holes in their pockets. These ladies and gentlemen will move heaven & earth to spend their money as fast as they can. It matters not if they’re earning a little or a lot – every penny is spent!

These are people who do not live below their means, for whatever reason. For this group, income is equal to expenses.

The Others

However, there is another group of people out there. They are the ones who pay themselves first. Their expenses are less than their income. They’ve managed to create some breathing room in their budget. They have funds that aren’t spent right away. For this second group of good folks, they only need to save 6-9 months of their actual expenses.

There is no point having money sitting idle in an account while waiting for an emergency when it could be sent out to work.

If you’ve been reading my ramblings for any length of time, then you know that I’m an ardent advocate of investing a good portion of your paycheque for long-term growth. This is what I mean when I say that the money not spent on your day-to-day survival should be sent out to work. When your expenses are less than your income, the difference between the two should be invested.

Allow me to be very, very clear. The money that is meant to cover your expenses during an emergency should never be invested for long-term growth. You need not run the risk that the stock market suffers its worst historical drop on the very same day that you lose your job and have to pay the mortgage. Your emergency fund needs to be sitting some place that is both boring and safe, like in a savings account at an online bank. When the emergency happens, you will need to access the funds quickly. You also need to be certain that they will be there. The volatility of the stock market offers no such certainty.

So whatever amount is needed to cover expenses should be in a boring, old savings account.

Money over and above your 6-9 month emergency stash should be sent elsewhere.

Personal Experience

For the sake of transparency, I will confess that what isn’t spent on the Care and Feeding of Blue Lobster is divided into two pots. There’s the long-term pot where I keep my retirement money. That pot is brimming with equity investments that pay me capital gains and dividends every year. Hooray! Then there’s the medium-term pot. This is where I stash the money to pay for things that will happen in the next 1-5 years. This pot pays for the un-sexy necessaries like insurance premiums and taxes. It also covers the fun stuff like vacations, concerts, and gifts.

The bottom line is that these pots are filled with the difference between my income and my expenses. In my case, my emergency fund covers 9 months of expenses. I can now use my money to fund long-term investments and medium term goals, all while knowing that my emergency fund is safely tucked away until I need it.

Why 9 months instead of the minimum of 6? That’s easy. I’ve always believed that it’s better to have more money than needed during an emergency.

A little something else to consider…

Expenses generally include debts. Take your pick – student loans, vehicle loans, mortgage, credit cards, medical, personal loans, veterinary loans, etc… If you’ve used credit, then you have debt. Chances are you’re paying off that debt each month, so your debt payments must be included in your expenses.

Debts don’t disappear just because your job has. That means your emergency fund has to be big enough to cover your debt payments should your income disappear.

But what happens to your emergency fund once your debts disappear?

The necessary minimum size gets smaller!

Excuse me, Blue Lobster? What are you saying?

Let’s say that your monthly expenses are $3500 per month. Part of that is a $1000/mth mortgage (or rent) payment and a $500/mth payment on your vehicle. For the sake of this example, your monthly expenses include $1500 in debt payments.

If you’re building a 6 month emergency fund, you need to have $21,000 set aside to cover your monthly bills in the event of an emergency.

However, once you’ve paid off your debts, then your monthly expenses are only $2000 per month. (This assumes that you don’t replace your former $1500 debt payments with new ones!)

Now, your emergency fund need only be $12,000 to cover six months of your expenses.

Will it take you less time save up an $12,000 emergency fund? Yes – yes, it will.

Getting out of debt means you don’t have to spend as much time building your emergency fund. In this example, the extra $9000 (= $21,000 – $12,000) can be invested for long-term growth that much faster. Ideally, Mystery Person learns to spend cash and doesn’t go back into debt. While Mystery Person goes to work, the $12K sits quietly in an account and the former debt payments are re-directed towards long-term investments.

Saving 6 months will take a long time!

Please go back and re-read the quote at the start of this post. No one promised that saving up an emergency fund would be a quick process. The fact that it takes a long time in no way diminishes the importance of creating one!

Start saving for your emergency fund today. Set up an automatic transfer from your paycheque to an online savings account. Do not get a debit card for this account. Once the money goes in, forget about it. This money is not to be touched unless your livelihood is threatened or gone.

Trust me when I say the following. You won’t want to be worrying about money in the middle of your emergency. Having an emergency fund to pay for things will be a comfort during an emotionally awful time.

Guilty Pleasure – Big Haul Grocery Videos

Yes… it’s true. I’m a Single Person who loves to watch YouTube videos about people – almost always women – who do huge grocery shops and create videos about it.

Since the Pandemic, and before I found these videos, I thought I was buying lots of food when I went to Costco. I’d buy two packages of chicken thighs and one package of chicken breast. Then I would head to the Real Canadian Superstore and buy a bulk size package of extra lean ground beef. Being a Single Person, I’d round out my shopping with a trip to Sobeys for bread, vegetables and fruits. I’d pat myself on the back for buying an extra loaf of bread, or maybe 2 packages of soft Kaiser buns, to put in the freezer. And let’s not forget about those 6 cans of sliced peaches!

Yes, indeed – job well done – way to go, Blue Lobster!

I was pretty proud of myself… until I found The Queens Cabinet on YouTube. This woman knows how to shop! From what I’ve gathered so far, Shelby and her husband Ken live on a farm and are raising 4 sons. When theywere younger, they had to budget their money and lived quite frugally. As a result, they chose to stock up on the things that they always use so that they always have food in their pantry.

Big deal, Blue Lobster – most everyone who can already does this!

Gentle Reader, I would suggest that few people stock up their pantry with a year’s worth of food the way that Shelby and Ken do. How many people do you know with 7 freezers? And how many people have their own baking centre, yet alone one that is so well-organized?

I’m not ashamed to admit it – a tour of her pantry made me wish that I had a slight touch of OCD just so I too would be motivated to take the time and organize my food storage space. In my world, a $3700 (or more!) grocery shop is still a very rare thing…even for those I know who go to Costco!

While a 4-figure grocery haul is not part of my life, I can see its benefits. You can stock up when things are on sale. This saves you from shelling out more when the price is higher. Secondly, meal planning is easier when what you need is already in your home. You can put the money-saving magic of your kitchen to work more easily when you have ingredients at your fingertips.

I’ve no doubt that Shelby still runs to the grocery store throughout the year for certain items. Fresh fruit and vegetables immediately come to mind. However, I would guess that she doesn’t have to waste money on condiments, meats, prepared drinks, and baking supplies throughout the year. She stocks up when it’s on sale, then it’s on hand when she needs it.

And if you subscribe to her channel, you’ll see that she’s a big fan of meal planning. I can’t say that I blame her! If I had her kitchen, I’d want to spend a lot of time in it too – cooking and baking things. Try to find the videos where she talks about her fridges – yes, more than one fridge in a kitchen!

Their Pantry is an Emergency Fund

What Shelby and Ken have done is to create an emergency fund of food. If their income stops for a period time, their monetary savings need not be used to feed their family. They have a cache of food already set aside so everyone will be able to eat while another source of income is found. Their cash-money doesn’t have to be spent on food, which means that it will last longer.

Take a look at your own budget. What percentage of your monthly income goes towards food? And if you lost your income tomorrow, how much longer would your emergency fund last if you didn’t have to use it to feed yourself?

But I don’t have the room for that much food, Blue Lobster!

I hear you. And trust me, I don’t have that much room either. However, I do have freezer in my basement and I have a freezer area in my fridge. That means I can freeze a much smaller, but no less important, amount of food. I have 6-8 packages of extra lean ground beef. Is that too much for a Single Person? No, not if I lose my job. A single package becomes 4-5 hamburgers, or a cookie sheet of meatballs, or a big pot of meat sauce. Whatever the final product, that’s a few meals that I don’t have to buy with money from my emergency fund.

The same principle to the chicken thighs that I’ve bought. A bulk package of chicken might have cost me $30. Yet, I can get 25-28 chicken thighs that I then divvy up into Ziplock bags of 4-5 pieces. It takes very little time to prepare a marinade, pour some into each bag with the chicken, and then freeze the bags for later use. I haven’t bought chicken in several months. I do the same thing with my pork.

I’ve started going back to my office, which means taking a lunch and taking snacks. My freezer allows me to baking a big batch of cookies, or muffins, then tuck them away for when I need them. If you’d rather have something else for snacks, then be my guest. My point is that it’s not a bad idea to have some extra food stored away. Save money now by buying things when they’re on sale. Save money later by not having to buy outside food unless the purchase has been planned in advance.

Use Your Pantry and Freezer Space

Do what you can with what you’ve got. Your pantry and your freezer space are tools that can help you save money. I’m not an expert. No one’s expecting you to be an expert either. That said, I learn a little bit more each time I watch videos about how other people do it. I can take a tidbit or two and incorporate it into my life. There are ways for me stretch my dollars.

Build up your own emergency fund by learning to buy a bit more when things are on sale so that you can stock your pantry and your freezer. Watch a few more cooking videos on YouTube so you can cook for yourself a little bit more. Figure out how to cook or bake what you like to eat, then do so. If you don’t already, learn to love leftovers.

You have to eat. Keep your pantry and your freezer well-stocked with foods that bring you joy. Then learn to cook & bake what you love in your own kitchen. Doing so is another way to insure that you’re using your money to create a life that maximizes your happiness and joy. And isn’t that one of the very best reasons to have money in the first place?

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Weekly Tip: Contribute to your Tax Free Savings Account every year. Invest your contributions in a broad-based equity exchange-traded fund or index fund for 2-3 decades. (You can select a mutual fund, if you wish. However, mutual funds have higher Management Expense Ratios than ETFs or index funds so it makes little sense to spend more money for the same product.) Let your money grow over the years and re-invest all the dividends. When you finally do withdraw your money from the TFSA, never pay any taxes on the principle or the growth.

When Should I Start Saving?

In a perfect world, you would have started saving with the first dollar that you ever received, i.e. birthday money, paper route money, graduation money.

You would have gone to the bank – or your parent would have taken you – to the bank and you would have opened an account. Then you would have deposited that dollar before you’d had a chance to spend it. Everyone seems to know that the sooner you start saving, the better. However, there appears to be a disconnect between knowing and doing.

You’re the only person who can bridge the chasm between knowing what to do and then actually doing it. The truth is that it is quite simple to open a savings account in today’s world of online banking. It’s another very easy and straightforward matter to put an automatic transfer in place, thereby eliminating the need for you to manually transfer money into your savings account. The automatic transfer kicks in every time you’re paid – easy peasy lemon squeezy!

The very next best time to start saving money is immediately. I cannot stress this enough! Savings work best if you take steps to save money. Step one – save. Step two – don’t spend your savings. If you’re not yet accomplishing these two things, then you’re only dreaming about saving… which is all fine and good but it won’t help you very much since you can’t use dreams to acquire what you want. Dreaming about saving is not the same as actually starting to save.

I love dreams as much as the next lady, but dreams don’t put the cream in cupcake. You need to actually start saving – the sooner, the better. I speak from experience. One of the reasons that I’m able to seriously consider an early retirement is because I started saving a portion of my first paycheque when I was 15 years old. I’ve made many stupid decisions with my money over the years, but starting my savings plan in my teens is not one of them.

Now, let’s say there’s a good reason why you can’t start saving today. If this is your situation, then I want you to start saving money on any day that ends in the letter “y”. That leaves you with Monday, Tuesday, Wednesday, Thursday, Friday, Saturday, and Sunday. Each of these is a very fine day to start saving your money.

Whatever else you do, please don’t start saving tomorrow. First of all, tomorrow is promised to no one. Further, it is not a day ending in “y” so it’s not a suitable day on which to start saving. And while I hesitate to state the obvious, I feel that it’s best to articulate the fact that everyone eventually runs out of tomorrow’s. No one ever runs out of today’s – go back to my first point. Today is the very best time to start saving money.

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Weekly Tip: Practice delayed gratification. Wait a day or a week or a month before buying what you want. It gives you a chance to assess if you really want to make the purchase. It also gives the retailer a chance to put the item on sale. This is good because the whatever-it-is-that-you-want will be cheaper if you decide to make the purchase after a prescribed waiting period.