Saving for an Emergency

life boatSaving an for emergency

So one of the first things my husband and I are doing right now, after getting out of debt is beefing up our emergency fund from pretty much $0, back to $10,000 since the beginning of this year (Jan 2016).

Although $10,000 will not cover 6 months worth of expenses living in a major city, its a good start. I can’t imagine dumping anymore at this point, as emergency money needs to be easily accessible. This generally translates into really safe and borrying savings which really don’t return anything in growth or even cover inflation. As my husband likes to say, this is our “dead money”.

Although we are putting a bit of money each month towards this goal, we are also making sure to not neglect other funds like education fund, date night fund, life & critical insurance premiums fund (seperate from our employer), and fun money. Then of course there are our other weekly/monthly expenses like rent, groceries, utilities etc.

. Let’s see how this would look using Tangerine’s rates (which we use):

Amount invested Type of account Interest rate
$2,500 Basic savings account 0.80%
$2,500 1.5 Year GIC (non-registered) 1.30%
$2,500 2 Year GIC (non-registered) 1.35%
$2,500 3 Year GIC (non-registered) 1.50%

Why did we choose the GIC laddered strategy:

  1. We chose the laddered strategy because it allows us to enjoy varying interest rates without tying all of our money into one year at one interest rate. Although the benefits are minimal with only $10k…every bit counts I guess.
  2. As each $2,500 amount matures at the end of this year, we will have the option of picking the best interest rate at the time based on the economy.
  3. We  left the first $2,500 not locked into a GIC because if we needed some money right away, we did not want to break one of our GIC’s and get 0% interest for doing so.
  4. Our emergency fund will be all in unregistered accounts. We are using our TFSA where it can bring us the best  returns and what it was designed for in my opinion (retirement planning). Our TFSA room is being used to invest in the stock market for our long term retirement savings. With stock prices so low, this is the best time to buy. We are not worried about getting taxed on the interest income from the GIC because the amount will be minimal and nothing that our other tax deductions could not offset.
  5. Because a GIC is locked, it forces us to have discipline and not spend the money on something else.

Goal: $10,000

Currently at : $2,500

Amount left to save: $7,500

For information on competitve GIC interest rates and other financial products, check out Rate Hub

Does anybody have any alternative ways or financial products they use to store emergency fund money? 

Categories: Savings

Tags: , , , , , , , , , , , ,

6 replies

  1. I like your strategy! Right now I keep all of my emergency and short-term savings in a standard savings account that yields 0.75%. I am looking to begin using laddered CDs as a way to increase my return on my cash savings since I like to keep these funds are liquid as possible.

    Like

    • Thats great! Yah that is what has been working for us as well. Finding a balance between liquidity and rate of return can be difficult when your dealing with CD’s but every bit counts and I found the laddered strategy really helpful.

      Like

  2. I agree entirely that a TFSA’s best use is for retirement savings. So many people are taught otherwise though. You’re not too far away from your goal really! Keep plugging 🙂

    Liked by 1 person

  3. Pamela, that is what I like to see a plan for getting there. You have a plan, now all you need to do is execute it. Good luck with your goals and may you exceed your goal.

    Liked by 1 person