Time to fill that emergency fund
Welcome back for another life update from February 2020. I must say, February has got to be the best month of the year. After all, the birthday of yours truly falls on this month... There is a chance I could be a wee bit bias.
But seriously, there are a few good things about this wonderful month.
Winter is nearly over! (or the hottest damn time of year for you Aussies)
Annual bonus is paid at the end of the month
It marks the third month in a row we've been on track with our finances
For those of you who live in the wonderful winter wonderland of Canada, you know how long of a slog winter can be. We aren't as far north as places like Yellowknife, but we still get our fair share of frosty months. Eight if we're counting... No, seriously. Our winter starts as early as October and can last until the start of May. I can hear some of you say, "Aww, snow for 8 months sounds fantastic!". I'll admit, it is nice for the first few weeks right up until Christmas. Then it loses its novelty. Real quick.
Image: Random snow covered car somewhere in Canada
You might be thinking I threw that picture in for laugh. A little bit, yes. But that picture is an accurate representation of what your car can look like if left unattended for a few days, or overnight in some cases. Let me tell you, shoveling a driveway after heavy snowfall is no joke, folks! It's hard work. "Get a snow blower. Make your life easier". Pfft, no thanks. Those things are pricey. Besides, shoveling is a great work out!
Anyway, enough talk about winter. Let's move on.
How many of you already have your bonus check spent before it arrives? You have played multiple scenarios in your mind for what you should spend it on. Buy that new 70" 4K ultra high def 3D TV to replace your puny 65" one you bought last year. Or lash out and buy a whole new wardrobe of t-shirts that you'll only wear 3 of. Don't lie, we've all been there. That's how we used to think too.
We'd often think of what we could buy with a nice lump sum of money. Paying off debt or saving was never one of our thoughts. Besides, paying down debt or saving is rarely seen as "fun" or "exciting". It's quite boring really. You don't get that same dopamine hit from paying an extra $1k off your mortgage or other loan as you do when you buy that same amount worth of clothes.
This year was different for us. This would be the first year we didn't spend our February bonus on crap we didn't need. Instead, we took the entire bonus check and transferred it to our high interest savings account we set up in early January. We haven't spoken about this yet, but we set up an account with an online bank for the sole purpose of stashing our cash in a separate account from our everyday use accounts. This is where we start to build our "emergency fund".
We shopped around and found a bank that had probably the best interest rate going at 2.45% APR. If any of our Canadian comrades are interested, we chose EQ Bank for our savings account. EQ has since dropped it's interest rate to 2.00% after the central banks of Canada and America cut their interest rates, but this is pretty normal and most banks operate like this. 2.00% doesn't like much but compared to most brick and mortar banks it's quite significant. For comparison, most of the big banks have a high introductory rate (usually for 90 days) to suck you in and then it sharply drops to like 0.05% after that. Always read the T's & C's.
For all you Aussies reading this post, EQ Bank obviously doesn't apply to you. Check out online banks such as Suncorp, UBank, Bank of Queensland (BOQ). See what they, and others, have to offer. I'm willing to bet they'll offer better rates than the big four of Australia.
Since opening our online savings account we've been diligently transferring money each pay period and watching it grow. We refer to our spreadsheet on the 15th and 30th of each month to see what our savings target is for that pay cycle. Once we refamiliarize ourselves with the target, we immediately start to transfer that amount to our EQ savings account. There is something really powerful about seeing money grow in a separate account to your everyday expenses. But what is our goal? How much do we want to see our savings account grow to?
Enter "The Emergency Fund".
It's all well and good to save for the sake of saving, but we find it a little bit easier if we have a goal in mind. We mentioned in Our Story that our annual savings goal was to save 60% of our net combined income, which is a great medium-term goal, but breaking that goal into "baby steps" is what keeps us motivated along the way.
Our first goal after we paid down family debt #1 and the credit card bill (we still use credit cards, but now we never carry a balance. That's a topic for a separate post) was to build an emergency fund, which should have enough to cover at least 3 months of living expenses. To be clear, that means if you lost your job tomorrow you'd be able to survive for at least 3 months with your emergency cash. Why is this important? For us, it's peace of mind. We never want another emergency to cause us to go back into debt.
We were stoked to have reached this goal by the end of Feb. It was a huge milestone for us. Before this we couldn't even say we had enough to live off for 3 weeks without using debt let alone 3 months! Yes, getting a lump sum annual bonus did contribute quite a bit to reaching this achievement, but nonetheless we were kicking goals.
The next goal we have in our sights is to have enough to cover 6 months of living expenses. In our plan we set a target date of 30th June, but between you and me I think we'll smash that out of the water!
We're keen to hear your thoughts and feedback about our journey so far. What do you like/dislike? What's confusing, or what do you want to hear more about? Log in and let us know in the comments below.
Blake & Allanah - FIRE with a family