I feel it’s my duty as a personal finance columnist to lecture readers now and then on the importance of having an emergency fund to cover unexpected expenses.
I also know how tired you are of hearing about emergency funds. They’re boring – money just sitting in a savings account. They’re also privileged – those who need them least can easily set one up, and those who need them most can hardly afford to put money away. But having even a few hundred dollars available for emergencies is one of the best things you can do for your personal finances.
Expect to hear from me on emergency funds if the economy tips into recession and job losses mount. For now, I will rely on a reader of this newsletter to show the benefit of an emergency fund. Here’s what she told me recently:
“I retired from a long, 35-year career in the federal public service in April, 2022. We all know what happened next (hint: inflation, rate hikes, etc.). After reading Rob’s columns prior to retirement, I decided to put my dream vacation on hold and set up an emergency fund instead.
In September, 2023, I had to pay almost $10,000 to replace my air conditioner. If I hadn’t put way $10,000 in a savings account, and gone on vacation instead, I would be in further debt. Yes, I still have a mortgage, but it’s manageable. As a single person from a modest background, I came to home ownership later in life.”
The point about avoiding debt is crucial. Credit cards can get you through a tough spot, but the cost is interest rates around 20 per cent. Home equity lines of credit can be used for emergencies, but they carry interest rates around 7.5 per cent these days.
Choose the right bank for your emergency fund and you can earn 4 per cent on savings that prevent you from taking on debt costing 7.5 to 20 per cent.
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Rob’s personal finance reading list
Work stress layered on top of worries about the rest of the world. Money isn’t mentioned here, but I feel like it’s part of the story here as well.
An investing blogger picks 13 top dividend stocks. BCE, the dividend stalwart now fallen out of favour, is not among them.
The writer of this piece reflects on the decline of Body Shop, a onetime retailing star that focused on ethical beauty products. People are willing to spend premium amounts on clean beauty – where did Body Shop go wrong?
Best cities for work-life balance
A look at how locations across the country score on health and well-being, liveability and work intensity. Quebec cities rule.
Reader comment
“Hi Rob – in response to your Aeroplan article … as a former employee of Aeroplan (many, many years ago) I can tell you without question the value on points redemption for flights is extremely strong and worth any hassle that one might experience. Example: Waiting for help from agents, who are well trained. Tip: business class Air Canada tickets are the best value for points – no comparison to any other program. And earning speed (or spend-to-redemption) is better than most programs.”
Do you have a question or comment for me? Send it my way. Sorry I can’t answer every one personally. Questions and answers are edited for length and clarity.
Tools and guides
Websites for selling gift cards. Yes, you can sell them for cash.
In the social sphere
Social media: Single, depressed and sick of owning a house, should I sell and buy a condo?
Watch: A personal finance 101 briefing specifically for Canadian millennials.
Money-Free Zone: Gil Landry’s Dead Language is one of those songs you want to listen to a few times in a row to take it all in. Roots rock with vocals reminiscent of Billy Bragg and a minimalist band that sounds amazing.
More PF from The Globe
- How this retired military member built up an $883,500 TFSA that generates $11,000 a month in tax-free income
- How do you set up your estate when one of your kids is good with money, and one is not?
- Financial boundaries look different for immigrants in Canada supporting families back home
- Trudeau says housing needs to retain its value
More Rob Carrick and money coverage
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