Since I built up my first emergency fund for the first time in 2010 (and realized it’s usefulness when I had to use it the same day I completed it) I’ve learned that it’s really hard to get started with savings when you’re not used to it, and you might end up having to use your first and probably second emergency fund for something but...eventually you start to get ahead.
I’ve learned how great it feels to save and how great it feels to have money in the bank to take care of things when I need to. I also realized last month, when I received some less than happy work news, that an emergency fund takes some of the pressure off. I don’t have to lie awake at night with anxiety while playing a million “what-ifs” through my mind like I did for a large part of 2009.
Since posting that update on my work-life about a month ago I’ve completed my emergency fund of $6,000 which is now sitting in a separate online account until I need it. Having a full emergency fund, which for me is $6,000 for now, is a fantastic place to be… but now it’s time to look past the short-term and plan for the long-term.
I’ve done ZERO retirement planning in my life so far. Sure, I’ve thought about it and what I want from life but I’ve taken very little action to plan towards this. I currently have a $6,000 emergency fund, $2,000 in an RSP, $1,000 in a brokerage account, a few thousand in a rather volatile investment, and of course my largest asset, my house (mortgage and all, darn it) Obviously none of these will feed me much more than a few months (unless I want to eat my house?) so, starting with yesterday’s paycheque I implemented the 10% rule.
What is this 10% rule?
The 10% rule is about saving 10% of your gross income (check out this explanation as well) Since I’ve been funnelling anywhere from $500 – $1000 per month into my emergency fund for the past half year, I’m really not going to miss this 10%! I haven’t opened a separate account for this 10% and won’t be investing it in the immediate future. My primary goal for the next few months is to get used to automatically saving 10%.
Since my wages vary from time to time I don’t have an automatic transfer set up for this and I kind of like it that way. Every time I get paid I will have to make the conscious decision to transfer 10% from my chequeing to my general savings account. (I’ve set up a separate account in my budgeting program to keep track of which amount belongs to my 10% and the rest of the money in the account which is my buffer/shorttermsavings/useforfunstuffmoney.
I decided to not just save 10% though, I stepped it up a notch! I’ve decided to put aside 10% of ALL my income, not just my wages. My GST refund quarterly, any tax refunds, contributions from my temporary room-mate. Everything will be subjected to the 10% rule.
My hope is that by the end of the year this habit will have become standard. I don’t expect to miss the money this week, or next week but I know there will be a time in the next month orso that I will question WHY I’m doing this. Hopefully I will be able to move past that so I can begin building a serious nest-egg for my future. Come Christmas I hope to then make a decision on what exactly I want to start doing with my 10%. (keep it cash, bury it in my backyard grandpa-style, buy bonds etc)
Update: I wrote this post about two weeks ago, I’m really enjoying putting the money aside with every bit of money that trickles in and I now have roughly $168 set aside without much trouble. I know I can’t touch it and I haven’t felt any urge to spend it yet! (Having the e-fund listed right above it helps)
You’ll notice I also renamed my emergency fund to something that more accurately (perhaps not appropriately) describes the freedom such a fund gives you 😉
How do you save for retirement? Do you use a percentage or just stuff some money in a mattress occasionally, or do you have your own mathematical approach to this retirement-thing…