Emergency funds == Very Important!

Dear readers: over the last week, I learned the importance of keeping an emergency fund. Let me share with you a story:

Cynthia is at a bustling restaurant, enjoying the food from a birthday dinner. Her iPhone is at her side, lying quietly on the table beside her plate. All of a sudden, the server bringing rounds of water over trips, spilling a glass full of icy, lemon water onto the table. The majority of it lands on the beautiful, innocent piece of electronica at Cynthia’s side. The table is shocked and the silence is deafening. Cynthia has no idea what to do, but the server panics, and starts trying to wipe water off the phone, and hits buttons as he does. Cynthia watches as the screen flickers on, and then fizzle, and then waver, and then, blacks out. The iPhone is dead.

To my great dismay, this is a true story. My poor baby. My best friend. My life. I have everything on that thing. Just ask the other UpbeaT bloggers, who I had a meeting with the day after my phone died. I went histrionic.

I stormed the Apple Store at Eaton Centre, and apart from being bemused by my plight but sympathetic to my distress, I was offered an iPhone 4 as a replacement. Which was great and all, until I found that it essentially rounded up to one *bleep*-ing grand because I’m not eligible for a contract, needed an unlocked phone and it was 32gb.

A grand is not something I drop lightly. Nor something I have to drop callously. But I needed* a new phone. I needed a smart phone because it’s indispensable to my commute and life in general. I needed that music player, camera, phone, calendar, to do list, pda, etc. etc. in one device. Essentially, I needed another iPhone and I needed it immediately.

Thankfully, two summers ago, I interviewed Cynthia Bishop, the Director of Student Life, Career Services and Alumni at Rotman Commerce. She recommended that I start an emergency fund. Here’s what I wrote then:

Speaking of emergencies, the ‘recommendation‘ is usually to have three months of expenses ready, but really, that’s easier said than done. The most important thing is to start saving now, and Cynthia suggests saving 10% of what you have/will make. Always pay yourself first and do it right away, because even if the amount is small, you’ll have something to fall back on in case if an emergency does come up. Plus, if you don’t end up using the money, congratulations, you can start paying for your student loans.

What I did after that interview was to automate my bank account. I started a tax-free savings account and automated it so that I put away 10 per cent from my monthly pay check to create an emergency fund. I originally tried to put money away manually, but when I had to consciously think about it, I always wanted to spend that 10 per cent on shiny things instead. By having the money funneled out automatically, it was like I didn’t have a choice about it and I gave up thinking about it.

I’m really glad I took Cynthia’s advice. This, for me at least, counted as an emergency, and I had the cash to deal with it.

I know I may not be so lucky in the future; it may not just be my phone that I need to replace. I may need to pay for food or rent or for medical expenses and I’m completely out of cash. Having my emergency fund means that at least I will have the peace of mind knowing that I’ve got myself covered if anything goes wrong. And having an emergency fund accumulate automatically means that that peace of mind comes without effort. After this experience, this is something I don’t think I’ll ever stop doing. For now, I’m keeping with the 10 per cent, but if I get a better pay check I may bump it to 15 per cent.

I am enjoying my upgrade and my old baby is stored in a bag of rice, which I heard dries the moisture out. When winter break comes along, I’ll take it apart and see if any of my beloved data are salvageable.

– Cynthia

*this is debatable, I know.