Tuesday, April 26, 2011

GIC Ladder Your Essential Emergency Expenses Account - Part One

This is the first post of three on using a GIC Ladder for your Essential Emergency Expenses. 

You've saved $1000 in your Emergency Fund and you keep it liquid to deal with life's unexpected events. You're snowflaking your way to debt free. You're on track.

Next on the agenda, an Essential Expenses Emergency Account.
Some experts recommend 6-12 months worth of bare-bones expenses. This would cover items like your rent or mortgage payment, insurance payments, gas for your vehicle, groceries, utility payments and other things that you just cannot get rid of, in the event of a life-changing financial disruption.

The Essential Expenses Emergency Account is especially useful for folks who are self-employed (like me) to keep them afloat if their income streams should suddenly dry up.

First thing to do would be to take your existing budget, and decide what would be kept, and what would be cut out. Rent, include. Toddlers swimming lessons, don't include. Phone bill, include, but maybe it can be reduced if you're faced with a huge income loss. Remember to include your debt payments, because whoever you owe money to will still want their payments regardless of your income situation.

Add up what you'd need to live on for one month with this now bare bones budget. The following numbers are for illustration purposes only.

Rent = $1000
Utility payments = $400
Phone = $50
Debt repayment minimums = $250
Insurance payments = $150
Groceries = $250
Total = $ 2100

 Let's say you wanted to save up 12 months worth of expenses to see you through future hard times. Your goal would then be to have $25,200 in savings. Where to put it? How to achieve it? That seems like such a huge amount of money to just have sitting around! How are you ever going to come up with that kind of money.

You save for it like you would save for any other goal. One dollar at a time.

This is not the type of savings goal that you would reach in six months or even in a year. It's a long process to have this kind of money saved. But if the economy takes another downturn in 10 - 12 years from now, you'll be glad you did it. And if you never need this money, you will have increased your net worth just by having it.


  1. This is so important, and yet it can seem like a pipe dream while you're still digging out of debt. I think breaking down the goal even further might make it more attainable. Aim for a single month's worth of expenses. Then another ... and another. If only I had gotten this advice 25 years ago!


  2. I've broken down my EEE fund goals into one thousand dollar increments. I celebrate each time I pass a thousand dollar milestone. We recently celebrated passing the $7000 mark, and we are hoping to hit $8000 by the end of the year. Our final goal is $25,000 which we hope to meet by 2016-2017. We've been working on our EEE fund since the fall of 2009, so about 18 months now.

  3. Good advice! I hate to think I'd have to live on my savings but many folks do encounter that dilemma from time to time. It's good to be prepared - it could make the difference between losing your house or keeping it!

  4. Very good advice. I think that you would never regret having one year's expenses in an emergency fund.