Wednesday, November 3, 2010
The All Important Emergency Fund
According to an article in this morning's Globe and Mail, 1.5 million Canadians are unemployed.
"As of September, 300,000 of Canada’s 1.5 million jobless workers have now been out of a job for 27 weeks or longer."
These scary figures should put to rest any arguments Canadians have about not having an Emergency Fund. Some financial experts say that having a 3-month emergency fund, but for those 300,000 Canadians mentionned above that 3-months might not have been enough - even with unemployment benefits.
My first real job out of University was a 2-year contract position. Knowing full-well that I would be out of a job (there was no option to renew since the contract was for a one-time event) in 2 years, I started saving for unemployment my first day on the job. Sure, I might have gotten the next job two weeks after this contract ended, but it also could have been 6 months -- in reality it was 4.5 months.
I calculated what my bare necessities were to live on (rent, food, transportation, phone, a few misc. items too). I did not factor in unemployment, because what if for some bizarre reason I didn't qualify, or the maximum amount allowed was lowered. I calculated that aside from the trip I'd planned and paid for after the contract ended that I would need $1,200/month to live on. So, I socked away $300/month for two years to come up with a 6-month emergency fund (I put this into a TFSA).
When the time came around to file for unemployment, I did qualify and my payment came out to $804/bi-weekly. During that 4.5 months of unemployment I actually came out ahead each month, PLUS I didn't have to touch my emergency fund. Since then I've moved it over to my RRSPs for the tax benefits and am now rebuilding it -- especially because the new job I have is contract and it will be time again in 2012 to look for something new!
How ready are you in the event that unemployment hits?
For more information about the Globe and Mail article: http://www.theglobeandmail.com/report-on-business/economy/jobs/long-term-joblessness-on-the-rise/article1783259/singlepage/