According to FP Canada’s Cross-Country Checkup, a Leger poll of 1,527 Canadians, one in three Canadians report that they would not be able to handle a financial emergency. Canadians aged 45-54 appear to be the least likely to be able to fund an emergency, with 42% indicating that they would not have enough money to cover an unexpected expense.
Kevin Gebert is a Certified Financial Planner® professional in British Columbia who serves clients in BC, Alberta and Ontario through his company, Green Rock Financial Group. He wrote Financial Fotographs, a guide for talking to your family about money, Financial Fotographs, a guide for talking to your family about money, and performs standup comedy routines about one of the most taboo subjects out there: money. He helps clients prevent their lives from being derailed by unexpected expenses and helps them to recover if a sudden expense does catch them off guard.
“From my standpoint, we look at preparing for emergencies rather than reacting to them,” says Kevin. He points out that rising housing costs have made it more likely for financial emergencies to occur, so planning for them has become more vital. “If you are in Vancouver, for example, housing costs are quite high and those making average incomes are typically living paycheque to paycheque.” Under these conditions, it is very easy for anything from a vet bill to an emergency car repair to derail an already tight budget.
So, what if you are among the one in three Canadians who does not have emergency funds, and you’ve run into trouble? “The first step should be to consult a CFP® professional. A CFP professional is there to help you to rebuild and put a game plan into place and arrive at a well-rounded decision to handle the situation,” says Kevin.
Kevin says CFP professionals aren’t just there to help wealthy people, but to help Canadians of all ages and income levels come up with a plan for their future—including those who may have run into financial trouble. “We’ll look at fixed costs, such as mortgage and other necessary bill payments, and variable costs such as cable bills that can be cut to make up the funds used for the emergency expense. Variable costs add up, and you [often] don’t know it until you see it in front of you.” These and other measures, according to Kevin, can help you recover from a financial emergency.
Unmanaged “reaction mode” can snowball into larger issues
If people try to manage emergency expenses without a plan, the financial stress of covering the expense, usually with various credit options, can lead to faulty decision-making processes that can create a snowball effect, according to Kevin. “If you get to the point where you can’t afford regular [car] maintenance such as oil changes, that can snowball into a larger expense, such as having to do major work on a vehicle. If you don’t have a plan in place, you may make a decision that isn’t well thought out and is a band-aid solution rather than an actual solution to the problem.”
Let a CFP professional help you put a plan in place and relieve financial stress
Putting a plan in place will enable you to make smart decisions about managing your money, and paying off any debt that has accrued from the emergency expense. “Planning is boring to most people,” says Kevin, but it can relieve financial stress and help you better prepare for any future emergencies.
The general rule of thumb is to have three to six months worth of living expenses saved in case of an emergency. However, Kevin says starting with a smaller goal can be more manageable.
“If you think that three to six months of expenses is too big of a number to put away, part of your cash flow plan should be to put a percentage of your income away in a savings account that you don’t touch, just so you know you are working towards that goal,” Kevin says. “I recommend saving 10% to 20% of your income each month, so that you can get used to living on 80% or 90% of your income rather than 100%. If you make this a fixed cost rather than a variable one, you’ll actually do it.”
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