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Discussion Starter #1
I'm curious how people use their emergency fund? Do you only use it for times when you are unemployed? Do you use it for car repairs? What about house repairs?

Do you begin saving for repairs that you know you are going to need like a new roof? Do you just wait until you need a new roof and hit up the emergency fund?

Basically do you save in advance for capital expenditures or do wait and use you emergency fund to pay for it?
 

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Like i mentioned earlier we do not hold a large sum in emergency funds, but the fund is used only when their is an UNEXPECTED cost, like a major car repair or major cost for anything that we have not accounted for.
 

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I'm curious how people use their emergency fund? Do you only use it for times when you are unemployed? Do you use it for car repairs? What about house repairs?

Do you begin saving for repairs that you know you are going to need like a new roof? Do you just wait until you need a new roof and hit up the emergency fund?

Basically do you save in advance for capital expenditures or do wait and use you emergency fund to pay for it?
All of the above for me! I basically build up a reserve for the time that I need it. If the reserve gets relatively large, I'll make lump sum RRSP or mortgage payments.
 

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Discussion Starter #4 (Edited)
I don't know if my questions were entirely clear.

Example. You think you'll need a new roof in 3 years. Do you:

a) begin to save and replace the roof in 3 years which means you'll have an emergency fund + roof money during that time

or

b) wait until there is a big gaping hole and then just use money from the emergency fund
 

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Our emergency fund is for true emergencies, those sudden unexpected events that could not have been reasonably forecast.

Thus roof repairs, car repairs, and the like are not emergencies, but are allocated in budget.

We don't usually maintain a lot of cash on hand, but hold it in relatively liquid investments, or retrievable investments.

DAvid
 

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Our emergency fund is also for true emergencies of which I seem to encounter at least one a year. Last year daughter#2 had to have emergency surgery in Halifax( we're in TO) so the emergency fund covered flight, accommodation and meals for me for 8 days.
On a trip out west 2 years ago a brand new tire blew outside of North Bay so emergency fund to the rescue as we had to purchase another new tire.
 

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It's a good question Jon asks. For me, it's a bit of both.

I keep a large pot of cash at a certain level, and skim off excess to RRSP and mortgage, like FT. The amount of cash on hand is large enough that it could finance any definition of emergency (job loss, furnace repair, etc) without worry.

I also believe strongly in looking ahead about 5 years for any foreseeable capital expenditures, and saving the cash in advance for those outlays. This would include buying a new car, a new furnace, replacing the roof, etc. For example, about a year ago I started a new savings account specifically for a car purchase that we would expect to make in 4-5 years.

It is better, in my opinion, to save the money today for those known future purchases when we have known and sufficient cash flow, than to commit to monthly payments down the road when cash flow is far less certain. One can argue that I am missing growth opportunities by keeping so much cash lying around, and indeed it is a boring strategy, but I expect to sleep well all my life through this approach to risk management and financing consumption.
 

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My emergency fund is for true emergencies, and only gets tapped if other resources can't be tapped to cover the expenses. In the example of a leaky roof, normal maintenance or expected repairs would come from normal savings for that purpose. Sudden catastrophic damage (i.e. meteor or stray rocket) would come from the emergency fund.

I'm pretty reluctant to touch my emergency savings simply because I'm always afraid that an even bigger emergency could be right around the corner. Since establishing our fund a few years ago, we've encounter numerous "small e" emergencies (unexpected major repairs, etc) but have yet to touch that money. Hopefully we never will!
 

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I use it just for big unexpected expenses. Routine car/house repairs come out of my general cash flow.

We had to patch our basement wall, that came out of the emergency fund. Partly because the money was readily accessible, and partly because my wife said "if you aren't going to use it for this, what will you use it for" and she was right.
 

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I'm curious how people use their emergency fund? Do you only use it for times when you are unemployed? Do you use it for car repairs? What about house repairs?

Do you begin saving for repairs that you know you are going to need like a new roof? Do you just wait until you need a new roof and hit up the emergency fund?

Basically do you save in advance for capital expenditures or do wait and use you emergency fund to pay for it?
This a good question. I would say that all the reasons that you gave are what my wife and I use our emergency fund for - capital expenditures as well as potential unemployment. However if I had to pick one, I would say our emergency fund is more for the latter.
 

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I have a "car repair" account for unexpected maintenance, a "house repair" account for the same thing, a "pet account" for emergency vet bills and then my "emergency" account would be if either my husband or myself became unemployed. I find that keeping them seperate helps me remember the ongoing maintenance that isn't necessary unforseen to the same degree as a job loss.

I think of the repair accounts as accounts that I am able to withdraw from, where the main emergency account is invested in easily accessible investments for unforeseen job loss scenarios.

So in answer to your question, if I knew the roof was going to need to be repaired in 3 years, I would get an estimate and bump up the house repair account.
 

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I have never used up my emergency fund...I'd have to be laid off and exhaust my savings first...

I agree with this...I would rather put a large purchase or repair on my ELOC at prime and pay it down very quickly..I do not consider such expenditures as emergencies, but rather as discretionary. (Ok perhaps not the hole in the roof scenario)
 

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This goes against what everyone says you should do, but I don't have an emergency fund and never have. I want my money to be working for me, so the most I leave in a non-investment account is maybe $1,000 to pay off my monthly cash-back credit card that I use for everything. If an emergency comes up, I tap my line of credit at 5.75%; I think it's more advantageous to allow my investments to continue their uninterrupted compounding than to pay a slight bit of interest for a couple of months. Even if I needed 10k- it's only $48/month to borrow it from the LOC and I always repay it as fast as possible. I'd lose more than that in growth by tapping an investment.

If the banks would pay more than a ridiculous 0.25% (often MUCH less) or whatever, then I might leave more laying around.
 

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This goes against what everyone says you should do, but I don't have an emergency fund and never have. I want my money to be working for me, so the most I leave in a non-investment account is maybe $1,000 to pay off my monthly cash-back credit card that I use for everything. If an emergency comes up, I tap my line of credit at 5.75%; I think it's more advantageous to allow my investments to continue their uninterrupted compounding than to pay a slight bit of interest for a couple of months. Even if I needed 10k- it's only $48/month to borrow it from the LOC and I always repay it as fast as possible. I'd lose more than that in growth by tapping an investment.

If the banks would pay more than a ridiculous 0.25% (often MUCH less) or whatever, then I might leave more laying around.
I appreciate where you are coming from, but is an emergency really the time to get in debt. Maybe you lose you or your spouse lose your job, not only is this a bad time to get in debt, but banks might reduce your line of credit. Remember that line of credit is not guaranteed and terms can change at anytime. I understand the chances of this maybe low, but that is the whole point of this.

You don't need to keep the funds in a everyday savings account, you can have it in a GIC or other guaranteed funds.
 

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I don't have an emergency fund and never have. I want my money to be working for me, so the most I leave in a non-investment account is maybe $1,000 to pay off my monthly cash-back credit card that I use for everything. If an emergency comes up, I tap my line of credit at 5.75%; I think it's more advantageous to allow my investments to continue their uninterrupted compounding than to pay a slight bit of interest for a couple of months.
I agree completely, this is my philosophy as well. The current low rate environment punishes savers of cash. If an expense of greater than $3k were to come along, I would borrow for 1-2 months. If the event was greater in scope, I have $27k in my TFSA and over $100k equity in my house that I could tap. The opportunity cost of having cash sitting around for rare events is simply too much for me.

If my girlfriend or I were to lose our jobs, we would get a couple weeks severance plus any owed holiday pay. This would likely equate to 5 weeks pay. If for some strange reason we didn't find jobs after 5 weeks there is EI, however we're both chartered accountants in a city with 3.5% unemployment so again I'm not too concerned.
 

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We just keep a great big "War Chest". It's a full year salary for the pair of us. In there is money in case the furnace breaks, or if we need a new car, or if one of us loses our job.

It's a loosely tiered system. But no money is specifically earmarked for each emergency.
 

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I have a "car repair" account for unexpected maintenance, a "house repair" account for the same thing, a "pet account" for emergency vet bills and then my "emergency" account would be if either my husband or myself became unemployed. I find that keeping them seperate helps me remember the ongoing maintenance that isn't necessary unforseen to the same degree as a job loss.

I think of the repair accounts as accounts that I am able to withdraw from, where the main emergency account is invested in easily accessible investments for unforeseen job loss scenarios.

So in answer to your question, if I knew the roof was going to need to be repaired in 3 years, I would get an estimate and bump up the house repair account.
This is exactly how we do it. That way emergency funds would be used for unemployment, I can't think of anything else at this time but anything could happen of course.
 

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We just keep a great big "War Chest". It's a full year salary for the pair of us. In there is money in case the furnace breaks, or if we need a new car, or if one of us loses our job.
That's pretty much our approach too, although we don't have as much money in our war chest. I view a carrying a credit card balance as an emergency, so in the (very) rare instances where I've had to put more on my card than I can pay off in a month, I dip into the fund for that.

I'm fine with opportunity cost if it helps me sleep at night. Some people lose sleep over opportunity cost; I lose sleep over the possibility of large unexpected expenses and I prefer to have a comfortable (and liquid) cushion.
 
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