29yo Diary; Hoping I'm on the right track - Page 2
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Thread: 29yo Diary; Hoping I'm on the right track

  1. #11
    Senior Member the-royal-mail's Avatar
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    FinancialPanther, it is not necessary to quote everything you reply to. We've already read it!

    Also, I agree with james4beach about saving cash. Everyone needs an emergency fund. If you're so desperate to invest, save separate funds over and above emergency funds for that.


  2. #12
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    @FP you're right, that does sound fair I didn't mean to jump on it, but I was in your girlfriend's shoes so it's something I notice.

    I'm with MoneyGal on the cash thing. If you want to buy a house in 12 months, that's a pretty good reason to have a ton of cash. The risk that the poop hits the fan and both of you suddenly become unemployed AND all of your assets evaporate all at the same time is not that great a reason (to me) to forgo the return potential. But here's an idea for where to put your cash that's a little unconventional - keep floats in your chequing accounts. TD's middle of the road account costs $130 a year, but that gets waived if you keep a minimum of $2500 in it. That's over 5%. If you need an even more expensive account, the savings get even better.

  3. #13
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    I keep my cushion with People's Trust. No fees, not locked in and I get 1.9%. http://www.peoplestrust.com/high-int...nts/e-savings/

    The "how much is enough" gets tossed around plenty. At the end of the day, choose a number that you feel comfortable with and makes sense for your situation.

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  5. #14
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    @The-royal-mail: I'll stop quoting, thanks.

    @KrissyFair: I use TD Select Service, so I keep the $5k minimum to waive all fees, including credit card annual fee. I suppose this would act as an emergency fund if need be.

    If I lost my job, my monthly expenses would drop significantly from $2160; -$650 leisure, partial -$140 gas, partial -$100 clothes, partial -$300 food. If I was unemployed for a prolonged time, I would move back in with my parents, which would -$600 rent and partial -$370 bills.

  6. #15
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    So there you go. If your leisure and clothes disappeared that $5k float would amount to 3.5 months expenses. I'd be comfortable with that as an emergency fund, especially since you've got a partner and parents to help you out of a jam too.

  7. #16
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    That's fine (if your expenses drop in case of job loss). As long as you're prepared for the possibility of losing your job and potentially taking a while to find a new one.

  8. #17
    Senior Member the-royal-mail's Avatar
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    You cannot presume that parents will be willing/able to help and the partner may bail as well. When the going gets tough...

    3.5 months is not a sufficient amount of money for emergency fund, esp since said fund depends upon leisure and clothing expenses disappearing. This is a real stretch. Most people should have 6-12 months of living expenses saved, in cash, ready to deploy on a moment's notice. A emergency plan with this many assumptions is simply too weak. Better revisit.

  9. #18
    Senior Member none's Avatar
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    What's the problem with using a line of credit as a form of emergency fund?

    I mean you can always sell things in the TFSA - it might not be ideal time - but it might be and even if it's not it's probably not going to be too bad.

    Also, as an engineer I think job security is probably pretty high - having tap tier employment insurance, and access to TFSA money if necessary and a secured line of credit I think is more than sufficient for an emergency fund.

  10. #19
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    I'm a little surprised at the recommendations for a large emergency fund. I'm more in the mindset of @none, for now, I could use a LOC or liquidate investments if need be (even if they lose 50%, I'd have enough for a long time in the most extreme emergencies).

    @the-royal-mail: An emergency plan with that many assumptions may be weak, but I believe that the flipside is true too. Preparing for the worst (my investments failing, losing my job, losing my girlfriend's job, and being unemployed for a long period of time) at the expense of $thousands of potential income per year seems like a waste of investment income. Especially considering that I'm in a good career and industry in a growing company, and am young and marketable, and have no debts to service. I guess it's a personal risk I'm willing to take for the potential $thousands of returns annually. Like @MoneyGal says, there's no consensus for the amount of cash someone should have, so I suppose it's up the personal risk I'm willing to take.

    It is something to think about though, thanks, especially as my financial and family situation changes in the near future (buy house, start a family). I'll revisit my risk level as these events happen.

  11. #20
    Senior Member HaroldCrump's Avatar
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    Quote Originally Posted by FinancialPanther View Post
    so I suppose it's up the personal risk I'm willing to take.
    Yes, in the end, that is what it boils down to ultimately.
    You have to assess your risk factor.
    That depends on many factors - the security of your job, the security of the investments you are making, your social safety net (family, friends, etc.).
    But keep in mind that many people over-estimate their risk tolerance (not just for investments, but for personal finance situation as well).
    When s*th hits the fan, that is when they realize what their true risk tolerance in.

    Remember - Misery likes company, and Murphy is alive and well.

    There is no question it is about balance.
    On the one extreme, you can throw caution to the wind and invest every last penny in risky stocks.
    On the other extreme, you can stuff all your money into a mattress and live like a hermit.

    Regarding the case for using an LOC as an emergency fund - this works only for small emergencies and for small amounts.
    And it works if you have a regular income stream coming in, such as a job.
    You need to pay monthly interest on the LOC, no?
    So you need a regular income source.
    If not, you will then end up borrowing from a credit card to pay the LOC and vice versa.
    That Ponzi scheme will collapse fast.

    In the case of job loss or other large emergency, it is an indeterminate duration and amount.
    It is not wise (IMO) to borrow large amounts from an LOC for indefinite periods of time.
    It can be kept as a last resort, but not as the first line of defense.
    If an LOC is your first and only line of defense, you are stretched too thin.

    Now, there may be other folks, in different stages of life that can be comfortable using LOC as their first line of defense.
    They may have other large assets, which can be liquidated if push comes to shove.
    They may have large investments, interests in businesses, rental properties, or lots of equity in their homes they can borrow against.
    They will say, yeah sure dude, the LOC is good as an emergency fund.

    But you have to evaluate your own situation.

    at the expense of $thousands of potential income per year seems like a waste of investment income.
    You have $14K in cash, yeah?
    How do you figure you are losing thousands of $ of investment returns every year?
    How much RoR are you planning to get? ;o)
    Even a 10% annual RoR will get you $1,400 a year (less fees).
    Is that a significant enough sum to take on the risk of having no cash emergency funds?

    Your net worth is $100K yeah, give or take.
    Therefore, the $1,400 a year of investment returns that you are afraid of missing out in represents a mere 1.4% of your net worth.
    Ultimately, you have to decide is that's worth it.


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