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Emergencies Aren't Being Saved For By Canadians
Unexpected expenses will hit everyone at one point or another – usually when someone least expects it. A recent survey was conducted with startling results. Almost 50% of all Canadians don't have an emergency fund in place.
A survey of over 2,000 Canadians was taken by the CIBC. The survey showed that the younger population is even less likely to have started saving. Much of this has to do with paying down student loans. About 51% aged 18 to 44 have some sort of money tucked aside for emergencies. The age group that is most likely to have an emergency fund is the group from 45 to 64. About 60% say they have an easily-accessible savings account in place.
Many families find themselves without any kind of emergency savings. Freelancers often work throughout their entire lives without putting anything into savings. One family was interviewed and has decided to keep costs low by renting and choosing to ride their bikes. Many have never owned cars. While keeping costs low is important, few have taken the money saving throughout the month and tucked it away in a savings account.
Advantages to Saving
It's important for people to realize how quickly a family emergency can deplete a savings account. Having an automatic withdrawal setup can be the easiest way to ensure savings takes place. When people don't even see the money, it's not missed. One family has taken saving to the extreme, having more than a year's worth of expenses tucked aside into a savings account. This allows them to have the necessary money to lend to a family member or take care of their own needs.
Others take the savings to heart with their businesses, too. One Toronto business owner has established two savings accounts for herself and her business. Since she has employees relying on her, she doesn't want to take any chances. She has decided that being self-disciplined is the best way to live.
An extremely stressful situation can be lessened by having the necessary funds on hand. No one wants to live hand to mouth – and no one wants to keep working when they are faced with tragedy. One man was interviewed to say that he was able to take time off when his wife was diagnosed with incurable cancer. Because he had an emergency fund set aside, he was able to take off the necessary time to be with his wife until she passed.
Everyone needs to establish some sort of savings. A good goal would be to create one month's of expenses over the course of each year.
Strategies for Saving
Many Canadians struggle with the suggested three-month savings account. This is an account that covers housing costs, transportation and food for three months. The households that struggle with this are often misspending their incomes. Long-term retirement savings are good to have in place but short-term savings are equally as important. Canadians need to establish a separate savings account for emergencies and only pay out fixed monthly costs only after holding a percentage back for emergencies.
Overspending on insurance often happens as well. This includes insurance for life, cars, medical and various other products. There are many families who have millions of dollars of life insurance out there and are paying a fortune for it each month. This much life insurance is often not needed, especially if both spouses are working. Studies have shown that most people have more coverage than they will ever need.
Once an emergency fund is established, it's important to add to it on a regular basis. When expenses drop or incomes rise, it should be directly proportionate to the amount going into savings. It can be more advantageous to calculate the contribution into savings as a percentage instead of as a flat rate. It will often result in more money going into the savings account so that a larger cushion is created.
Even the group with the highest percentage of savings accounts is only at 60%. That leaves 40% of the population without any kind of emergency fund – which can be a scary situation to get into.
Every Canadian can establish an emergency fund. Those that don't have one either don't understand the importance or don't think they have any extra money. By re-doing a budget, everyone can establish at least something to go into savings every month. Even a month's worth of expenses inside of an emergency fund can make a dramatic difference if some form of tragedy strikes.
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