Friday, 25 January 2013

Emergency Fund: Get One Now!

An examination of the importance of having an emergency fund and how to approach starting one.


Do you have an emergency fund? I do because I recognize how important it is from personal experience. When I was in university I supported myself by working part-time. I didn't have lots of surplus money, but I got by. Then something unexpected happened - I broke my ankle and I was unable to work for several months. I got a little bit of money on EI, but that wasn't enough to pay all my bills. Luckily, my parents and grandparents were able to help me out, but that experience has instilled in me the importance of having an emergency fund. Nobody plans on bad things happening to them, but it's best to be prepared if they do. The last thing you want to worry about when you're recovering from an illness, death in the family, or job loss, is stress about how you're going to pay your bills.

Why Should I Have An Emergency Fund?

If you were injured and unable to work tomorrow, what would you do? What if one of your family members took ill and you took a leave of absence to care for them? What if your spouse lost their job and you couldn't support your family on one income alone? These are all realistic scenarios that you should be prepared for. We always think nothing bad is going to happen to us (and hopefully nothing ever does), but wishful thinking isn't going stop those things from happening. If you have benefits from work they might help you out, but make sure that you understand exactly what conditions qualify you for assistance. You might be surprised to find out you're not as well covered as you thought.

Some people think that if you lose your job EI will cover your bills. This is not true. You'll only get around 55% of your average salary on EI, and that's after a 2 week waiting period during which time you can't earn any money (including vacation pay and severance). You also have to qualify for EI, which is determined by the reason for leaving your job and how many insurable hours you have banked. So even if you qualify for EI, you'll still need some savings to get you through the waiting period.

How Much Should I Have?

How much you should have set aside in an emergency fund varies depending on who you ask. According to RBC's website, you should have 3 months set aside. They also have a neat calculator on their site that lets you calculate how much you should have set aside according to that principal. Other experts say you should save between 6 and 12 months of your salary. Personally I have a goal of having 6 months of my salary set aside. I am nowhere near there right now, but the point is that I set aside money every month to help me reach that goal. 

Where Should I Keep My Emergency Fund?

You want your emergency fund to be somewhere safe where you can have quick access to it. This means not tying it up in investments. It can be hard to watch your fund sit idle, but when you do need it you want to get it right away. I store my emergency fund in a savings account at my bank. It's earning 1.35% in interest, with an anniversary bonus. This isn't much, but I did research and it was one of the highest interest rates I could find that suited my needs for this particular situation. Do your own research and figure out where you would feel most comfortable keeping it.

Don't Use It Until You Need To

Now, it can be tempting to use your emergency fund to pay for any little emergency that pops up - resist that urge! If you keep spending your emergency fund, it won't be there when you really need it. You should hopefully have other savings accounts for things like medical expenses, home repairs, and car repairs. Save the emergency fund for a genuine emergency!

Conclusion

It can seem impossible to set aside 3, 6, even 12 months of your salary for something that may never happen. But trust me, you should do this, and sooner rather than later. Even if you set aside a little bit every month it will help out. Saving is a habit you have to start. So once you get in the habit of setting aside say $20 a month, it will be easier to increase that later to $100, even $200. In no time at all you'll have the critical savings fund you need, just in case.

Tuesday, 22 January 2013

Job Loss: What To Do When You're Suddenly Unemployed

A look at how to approach the sudden crisis of job loss and how to start navigating through it.



Losing a job can be overwhelming and scary. Frantic thoughts start running through your head - how am I going to pay my bills? How am I going to feed myself and my family? What am I going to do? This post will help you deal with this unfortunate situation calmly and hopefully help you get on your way again. At the very least, some of these things have certainly proven helpful to me when I've been in this situation.

What To Do Step By Step

1. Breathe! 

Running around like a chicken with its head cut off isn't going to help. Stop and take some time for yourself. This is a very emotional process and it's important not to get overwhelmed. If you need a day to just chill out and process all of the stuff going on around you, take it.

2. Apply for EI

If you qualify, apply for EI (employment insurance). This is a government-run program that workers pay into every paycheque. It's designed to help you pay your basic necessities while you look for a new job. There are a lot of drawbacks to EI so don't expect to continue living the same lifestyle you did while you were employed. You'll likely get around 55% of your average earnings on EI, to a maximum of $501 a week. There is also a 2 week waiting period before you can get your payments. These are important things to know for the next couple of steps.

3. Count your money

Look at your bank account(s) and figure out exactly how much money you have and currently owe. Hopefully you have an emergency fund that you can rely on if you need to. Remember there is a 2 week waiting period on EI where you can't earn any money. This is where your savings will come in handy. Figure out your new income from EI or other sources as you'll need that number to make a new budget work.

4. Readjust your budget

Look at your budget and separate your fixed expenses from the variable ones. Fixed expenses cannot be reduced and will include things like rent, car payments, and insurance. Variable expenses can be reduced or eliminated, and include things like cable, phones, groceries, and entertainment. Some of those things might seem like they should be fixed expenses, but they aren't. That's because you have some control over them. You decide what level of phone coverage or internet service you have. You decide whether you're eating salmon or chicken. 

It's important to keep your budget realistic; while it may seem like a good idea to get rid of entertainment completely, you should keep some money around to relieve your stress; you don't cease requiring leisure activities just because you're unemployed. Once you have a budget you can work with, day to day living should be a bit easier. If you know you have say $100 to spend on gas and you've spent only $90, you don't have to worry that you're spending too much on gas because you're under budget. So don't start acting like I did, making my husband turn off all the lights because I was convinced we were burning up our hydro bill even though we weren't doing anything different than normal.

5. Update your resume

Look at your current resume and update it where possible. Do you have your most recent employment experience on it? You'll be sending out a lot these in the near future so make sure its a good one.

6. Update your online profile

These days having a professional online profile is important for job searching. LinkedIn is the most popular, so having an account there is a good idea. Make sure your Facebook, Twitter, and whatever other social media sites you use have professional-looking profiles as well. Employers do detailed searches of potential employees, so look great online. 


7. Look and apply for jobs

You've got your resume and online profile in tip-top shape so its time to start looking and applying for jobs. Use websites like Job Bank, Monster, and Workopolis to start, but don't limit your search there. Word of mouth is a great way to look for jobs because not all job openings are listed. So ask your friends, family members, hair dresser, anyone you know if they know of any job openings. 


8. Seek professional help

There are lots of free services out there to help you in your job search. Most cities have an employment center, so find the one nearest to you. If you went to a post-secondary institution your alma mater might also have a career center you can use as an alumni. Granted, you'll probably have to live in the same city as the school to take advantage of this, but if you do why not check it out?

Do Not Do This:

- Do not panic. You're going to get through this.

- Do not feel ashamed. Jobs come and go. Gone are the days where you work at the same company from ages 18 to 60. Its expected that you will work for several companies during your working career. There are many reasons for losing a job that are outside of your control.

- Do not rely on credit cards. Cut back your spending where you can, but do not use credit to fill in the gap; this habit will haunt you down the road. Better to eliminate unnecessary expenses and use your own money first. Ask for help from family if you absolutely need to, but pay them back, as no one wants a mooch for a relative.

Conclusion

You're going to be ok. Reading this post is a great start and now you know what to do next. I was unemployed for a couple of months last year and that's what got really got me started in budgeting and learning to manage my money. When I was back to working full time I had a new appreciation for living with less. I was able to do more with my money than before I was unemployed. For me being unemployed worked out really well. I hope you can turn this negative experience into a positive one as well and get started at a new job soon.

Wednesday, 16 January 2013

Your Credit Report: Why You Should Get It and How

A look at the importance of obtaining a personal credit report for Canadians. 



Something I have been thinking about doing but have not up until recently is ordering my credit report. My excuses to date have been that its too expensive and I don't think I really need it so why should I bother wasting my money on it? I was wrong.

What Is A Credit Report?

According to the government of Canada's website, a credit report is a detailed report of your credit history and is kept by at least one of Canada's credit-reporting agencies. In Canada there are two credit-reporting agencies, EquifaxCanada and Trans-Union Canada. Your credit report and score are used by creditors to determine whether you are safe enough to lend money to. There are differences between the two credit-reporting agencies which are worth a more in depth look later. But briefly, your information will be different for each agency as they have different policies for how long they keep something on your file (generally Equifax keeps them on file for less time than Trans-union, but it depends on what it is) and how they rate you. Also some creditors will use your report from both, while others only the one. So I would say that it is a good idea to get your credit report from each. Maybe from both the first time you do it and then alternate every year after that, or be really prudent and do both each year.

Ordering Your Credit Report For Free

Did you know that you can order your credit report for free in Canada. What, free? I didn't see that! Of course not, the credit-reporting agencies want to make money off of you so they charge you for instant access to your credit report online. However, they cannot charge you to mail it in. Go onto their websites and download the form, fill it out and attach photocopies of proof of identity. To order from Equifax click here. To order from TransUnion click here. Mail it in and voila-in a couple of weeks you will have your credit report. Now this is not the same as a credit score, that you still have to pay for. For Equifax it costs $11.95. However, this might not really be worth doing since the score they provide you with is not a FICO score which seems to be the one most commonly used by Canadian creditors. Currently only Trans-union provides you with your FICO score for the low low cost of $22.90.

Why Should I Order My Credit Report?

It's very important to get your credit checked every year (yes each and every single year) because its important to keep a close watch on any use of your name and credit. This is a great way to protect yourself against identity fraud. A good friend of mine told me this story awhile ago about a cousin of hers that was trying to get a mortgage to buy a house. She had the house picked out, but on the day she went to get the loan and put down a down payment she found out that months ago someone had opened up a credit card in her name and racked up several thousands of dollars in debt. While the situation was eventually resolved it took a lot of work on the cousin's part to prove it was not her who opened the card and the time it took meant she did not get the house. Had she checked her credit before going to look for a house she would have seen this big check against her name and dealt with it immediately.

Sometimes there can be checks against your credit that you are not even aware of but have nothing to do with your identity being stolen. Another friend of mine closed a credit card years ago, but didn't realize she owed $0.75 in interest that was eventually reversed. For years that $0.75 was counting against her and she wan't even aware of it.

So get your credit checked every year because its a good idea to have the best credit you can- you never know when you're going to need it. Find out, when you don't need credit, that something is causing your score to go down and allow yourself time for it to recover. Don't get caught surprised when you're applying for a mortgage or line of credit and get denied.