Tuesday, 4 October 2016

Create Emergency fund without having cash

Personal finance gurus advised us all to have an emergency fund with at least 6 months expenses.
So, the emergency fund depends on the way you live your life. Some say, you might need at least $5000 kept away easily accessible.
Do we really need to keep that much liquid cash?

If I keep that money in my checking account, it is not going to give me any interest. may be we can put that money in a high interest saving account or flexible GIC. Another option is to put in a high interest TFSA.

In this modern world, we all have credit cards. We all have bank accounts.Money is available easily, if you have a credit card. Even bank will let you have some money without having that much in your account. There are line of credits, and over draft facilities.

So, think of having a real emergency, like the car broke down, or the furnace stopped working in the middle of winter. Then, you can really put it on your credit card. There is a grace period for paying that bill. You can use your credit card to pay that bill. Get some points on that expense too. Then before the end of the grace period, un-park your money from the GIC or high interest savings account or the money market fund.

If you are using the line of credit from bank, you will have to pay for the insurance on that money. I can't remember what they call it: but, CIBC charged me about $7  for using line of credit, even though I paid back within 20 days.

If you are sure you can pay the money back to your credit card within the grace period, you really don't need to keep the liquid cash in checking account.

So, there you have the emergency fund, without having liquid cash sitting around doing nothing.
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