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Rainy Days and Mondays Always Get Me Down

in Bank, Bank Rates, Canadian, Debt Reduction

One of the more cliche statements most financial planners, and financial advisers make is that you should have a Rainy Day fund, but what do they really mean by this statement?

The easy answer is, they want you to save for the future to make sure if there is some heinous and unexpected expense that arises (e.g. the car breaks down, the furnace blows up, etc., etc.,) you will have funds enough to deal with this surprise expense. This is a simple concept, and really points out that with money you cannot just live in the here and now, you must plan for the future, even if you are not sure what that future might be.

Rainy Day Saving Vehicles?

So what savings vehicles can you use to create your Rainy Day fund? In Canada there are a plethora of financial methods you can use that should make your savings safe and grow in a reasonable fashion. The ones that I can think of are:

  • A tin can or piggy bank in your house. Surprisingly there are some folks who still use this methodology, where they put their change and found moneys away, and every period of time they empty it out and put it in a savings vehicle. This is actually good, except that the money sitting at home has 1 or 2 dangers too:
    • The money is way too available to you, and can easily be used for an impulse buy, and thus is lost for your rainy day.
    • You may forget you have this secret stash, and thus it will sit in the coffee can not growing for  a long time.
  • A savings account. This is a good place to put it, given it is not as available to you as the coffee can, but savings accounts don’t pay much in terms of interest, but they also don’t tend to lose value either (unless you pay ridiculous service fees for use of the account).
  • Your TFSA, yes that brand new savings vehicle could be your “Rainy Day” fund, and it fits the model quite nicely. If the account is a trading account, then you can get nice gains (but also risk losses as well, as you always do when you invest in equities). The nice part about the TFSA is if you take your money out, it’s growth is tax free, and you don’t lose that savings space in your TFSA either.
  • Your RRSP, well that is a really rainy day you are saving for. That money is a lot farther away from your usage, you get a tax break for putting it in, but you get penalized when you take it out, but it is still a place to put your Rainy Day funds.
  • An RESP for your kids, is a rainy day fund of a kind, since it is saving for your kids education, and is designed to make their entry into University a less traumatic experience (for you).
  • An RDSP is another long term savings vehicle to help your kids or loved ones, if and when you are not around (a very rainy day).
  • Paying off your debts is an interesting twist on the Rainy Day fund. If you pay down your debt, you will have more debt room later if you need to borrow, and if you pay off your debt quickly, you can then build up savings and create a real Rainy Day fund.

Are there other Rainy day savings vehicles I am missing? Ponzi schemes? Pyramid schemes? Tulip futures? Any ideas posted in the comments would be appreciated.

Cry havoc and let slip the dogs of war!!!!

All right I have had enough of being treated as a second class financial blogger by the Globe and Mail, they announced The Best Canadian Money Blogs as voted on by their readers, and I was nowhere to be seen!  The winners were WhereDoesAllMyMoneyGo and Squawkfox ?!?!?!? This is an outrage, much like when the Montreal Expos were taken away and put into Washington to become the Senators!!! I shall not rest until this wrong has been avenged!!!!

Congrats to the two winning sites and to all the other participants, it is an honour to have even been mentioned with them.

{ 2 comments }

  • The Passive Income Earner May 27, 2010, 10:13 AM

    Would a line of credit in working order work as emergency use?

    It depends on everyone’s situation and what the plans are for the emergency fund. Do you plan to cover your mortgage payments for 6 months in case you lose employment or do you put some money aside to take care of the unknowns … If you still have a mortgage, the emergency fund could very well reduce your amortization.

    Reply
    • bigcajunman May 27, 2010, 10:26 AM

      That is always an interesting question, is it better to pay down debt, or save money to pay the debt later, not sure I know the absolute answer either, but am open to discussion.

      Reply

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