GIC Ladder Your Essential Expenses Emergency Account - Part Two

This post is a continuation of a series I've written on using GIC Laddering for your Essential Expenses Emergency Account. You can read the first post here.

You've figured out that your family would need $2100 per month to live on if you were faced with a financial catastrophe like a long-term income loss.

Your big goal would be to set aside $25, 200 to see you through a year of income loss.

Now to break it down into something more manageable. Ideally, you would want to set aside one months worth of each expense and do that 12 times. Make a chart with 12 boxes for each expense amount, and as you save each one check off the box. Start out by setting a goal of just one months worth of expenses, or $2100.

Use whatever methods are best for you to set aside money for this goal. Save up coins and roll them for deposit into a savings account. Set aside 10% of your income as soon as your paycheque comes in, or use your snowflakes to add to this fund. It doesn't really matter what method you use, only that you start somewhere. If all you can afford is $50 a month, then so be it. Your resolve to get to your goal with this fund will come later, maybe using a payment for a debt that has been eliminated, or something else. Right now, focus only on starting, not the end results.

When you have attained one months worth of expenses, you can leave them in a savings account. Or you can begin your GIC ladder right away. If you want to put the money in a GIC right away, do your research first. Compare interest rates from different banks to get the best rate. Look particularly at minimum amounts required for deposit to earn those rates. Some online banks have $1 minimums for deposit, and still give decent rates.

You can choose to put the total $2100 in a GIC for anywhere from 3 months to 5 years. Until you have the total amount saved, it may be prudent to use small maturity spans. Let's say you use 3 months for your GIC. Elect to have the principle and interest re-invested for another 3 months when it matures. Your money is still safe, you've earned a little interest, and maybe in those 3 months, you've built up a third of another months worth of expenses.
Remember that it will take time and diligence on your part to build up to having another months worth of expenses to purchase another GIC. Continually adding to it will get you to your goal. One months worth of expenses at a time.

Right now, you're likely focusing on getting that debt paid off. Which is a good thing. But you should have some money in reserve. Imagine if you were paying down the debt, and then got laid off. Or the primary income earner in your household got injured or severely ill.

The third and last part of this series will be posted tomorrow. As always, comments are welcome.

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.