Life can sometimes throw us a curve ball. We like to make ourselves as comfortable as possible in our day to day lives and when an unforeseen complication pops up are you prepared to handle the fall out?
Randy worked for a small business. When the owner died suddenly, the business accounts were frozen and it took several weeks before they could be accessed to meet payroll. Randy had trouble meeting his financial obligations and had to find a new job.
Jane worked at a small company for many years. When the owner decided to retire, she offered to sell the business to Jane. As she didn’t have the funds available, the business was sold to someone else. The new owner let Jane go shortly after taking over.
Joe and Gayle had been renting a house for several years. When the owners decided to sell, they offered it to Joe and Gayle first. Because they didn’t have enough for a down payment, they couldn’t afford to buy the house and also had to move.
Randy, Jane, and Joe and Gayle would have been able to deal with their situations more favorably if they had established emergency and opportunity funds.
It’s all too easy to start taking one’s cash flow for granted and get lulled into the belief that it will go on uninterrupted. Many fall into the trap of trying to save money after all other payments are made. People make their wants their needs and usually, there is little to nothing left over to save. Those who are best able to handle emergencies and opportunities that arise are in the habit of paying themselves first. How do you pay yourself first? Take a little off the top and set it aside. There are many vehicles one can use, and they include:
Tax Free Savings Accounts (TFSA)
The inappropriately named savings account, when they should have been called investment accounts due to the variety of investment that can be held. These plans allow you to earn growth on your deposits without paying taxes on it. Withdrawals can be replenished in the future and your investment choices mimic RRSP options.
Universal Life Insurance
These policies can combine protection and savings in one plan. The minimum premium is set at a level to cover the cost of the death benefit. The policy holder can choose to pay more(over fund), within certain limits, and these extra premiums accumulate on a tax deferred basis. Generally paid out as part of the death benefit, the extra deposits can also be accessed, depending on the company, by withdrawal or policy loan.
Guaranteed Interest Certificates (GICs)
Funds can be deposited for a certain period at a fixed interest rate. The interest if fully taxable, even if left on deposit, in the GIC. Because GICs are for a fixed period, funds may not be available at the precise time they are needed, so liquidity can be an issue.
High Interest Bank Accounts
This may sound like an oxymoron, but there are actually a few banks that offer high interest savings accounts; some with chequing privileges, too. Bear in mind that any interest earned on money in these accounts is fully taxable. However, most bank accounts are readily accessible, so it can be too easy to withdraw funds for things that aren’t really emergencies or opportunities. This may not be the best choice.
When prosperity comes, do not use all of it.”
Save a little for a rainy day”
– Mike Dumond
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