The last time we left Spenderella, she was running from the Evil Bankmother and had just learned about tracking her net worth, what will today have in store for her?
“Oh Fairy godmother, thank you for your great wisdom and putting me on track to finding my net worth but my greatest wish is to rid myself of the Evil Bankmother and repay all that I owe, what can I do? “ Spenderella pleaded.
“My child, perhaps you are not using your money wisely. I know you like to spend on beautiful gowns, which you must stop doing at once, but perhaps you are saving too much? You have $1200 for emergencies, surely that is enough for now my dear?” How wise her fairy godmother was, but Spenderella was still so unsure and doubted the words.Pigs is handmade by Gary Rith Pottery – http://www.garyrith.com/
“Uh…uh…Spenderelly, Spenderelly…maybe..uh your fairy..fairy godmuther’s r-r-rright…maybe you should pay back the money you owe insteads…uh huh yep yep. Dat’s what I tinks!” Pigs suggested. He was one of Spenderelly’s bestest friends, along with Banky. They were the best friends any girl (woman) could ask for.
“Oh, but I’m not sure Pigs, I need to save some money so I can get away from the Evil Bankmother! She won’t let me do anything, she’s so mean and makes me work and work and I can never get away.”
Spenderella had a big dilemma, should she keep contributing to her emergency fund to build up living expenses so she can run from the Evil Bankmother, or should she stop saving to her EF fund and use the extra money to pay back what she owes?
“My dear Spenderella, I believe you should listen to your friends Pigs and Banky. They know you so well and care for you so much. I think I have something that will do the trick!” And with a bibbity bobbity bankity boo…what should appear in front of Spenderella, but some wise words stitched and framed so beautifully for her to follow.
“Why…why…it’s magnificent fairy godmother!!! Thank you, thank you soo much!” Spenderella exclaimed.
“All I ask my dear, is that you follow these steps. Follow them one by one. You have $1200 in an emergency fund, next you must pay off all debt. I will be with you on your journey to help you and guide you along the way. Keep to these rules and your dreams will come true.”
And with a wave of her wand and a bibbity bankity boo, Poof! Spenderella’s fairy godmother disappeared into a starry cloud, but not before she could say…follow these rules and all your money dreams come true!
Refocusing Plans and Goals
We all know what it’s like, you get a plan in place and think it’s set in stone, but sometimes you have to tweak it. I’ve reached the point where I need to start monitoring my plan more closely and changing it where necessary to get my money working better for me. I have $1200 in an emergency fund and with $25K in consumer debt, there’s no point in saving so much when any interest I make barely compensates for the interest I pay on the debt. It’s time to refocus, so I’ve cancelled any savings into my emergency fund. I will only be setting aside money for car maintenance, home/rent savings and vacation. Removing the money going into an EF will free up $200 a month more that I can use to contribute to debt repayment. Once I get my debt back down to a much lower level, I’ll bring back some more savings.
What was the percentage of my income I was currently saving? It was a whopping 13%! The goal is to aim for 10-15% savings, but with the debt I have, the money could be better used towards it. I’ll still be saving into my RRSP, that’s 3% and the savings mentioned above, that’s 6%, for a grand total of 10%. Not too shabby.
Deciding what to save into your emergency fund can be a brain twister with all the varying amounts and numbers that are out there in the Googleverse. Ultimately, what should be in your EF fund is what works for you. Take a look at your net income, what emergencies you’ve had in the past, then decide on a number. I’ll give you a quick example…for myself, I do not own property or rent anything I have to repair, so there’s a huge savings – I’ll never have to repair a leaky toilet or a broken door knob. The only emergencies I’ll have are related to Maggie, my cat; the car or anything health related that pops up which benefits may not 100% cover – remember my root canal?
Based on an average of all those factors, at the moment, I can get by on $1200 for emergencies. The money I would save earning only 1.35% would be better utilized paying down debt that has 5.5%.
Do you have an emergency fund? Is it at a level you’re comfortable with? What are your thoughts on my decision to stop funding my EF?