Ready or Not? Doesn't matter, it's still going to happen.
IF A MAJOR EARTHQUAKE EVER HITS Nanaimo, B.C., Pam and Bill Merriweather* will be ready. They have two backpacks equipped with water, emergency rations, copies of their passports and other ID, and a small amount of cash in case they need to evacuate.
They live by the slogan — Be Prepared.
And just as they keep first-aid kits in their vehicles and a stash of candles at home in case the power fails, they’re also ready to deal with financial emergencies. They’ve set up a savings account that holds the equivalent of three months of their basic living expenses (the rule of thumb is to have enough to cover three to six months). And they have access to a low-cost line of credit that would cover several more months of expenses in the event that, for example, one of them loses their job, or they need to cover an unexpected home repair.
Were the Merriweathers always so well prepared? Not financially, at least. As newlywed graduates, they just wanted to pay off their student debt and live within their means. Their only other specific financial goal was the vague thought that they’d like to buy a house. In fact, they didn’t have a formal budget until they started house hunting 20 years ago — tight finances meant they had to take a clear-eyed look at how and where they were spending their money. They balked at saving the suggested amount to cover emergencies when there were so many other demands on their finances.
Still, they understood the what-ifs that come with owning a house. What if the washer and dryer pack it in at the same time? What if that funny smell in the basement turns out to be mould? What if a raccoon nests in the attic? It was time to consult an advisor, who confirmed they should budget for unexpected expenses as part of their overall financial plan. Based on the advisor’s recommendations, they:
■ Opened a savings account and set up an automatic transfer to ensure the funds were available as needed
■ Applied for a home equity line of credit
In the years since that initial meeting with their advisor, they’ve had to draw on their emergency savings more than once. From cleaning up after a windstorm took down four trees on their property to hiring a personal support worker when Bill broke his leg skiing, they’ve come through various emergencies without derailing their overall financial plan.
Each time, they rebuilt their cash savings and paid off their credit line efficiently so they would be ready to deal with the next unexpected event.
The Merriweathers meet regularly with their advisor to review their financial plan, which includes looking at the amount they’re committing to their emergency saving, as well as towards their retirement and other long-term goals.
Although it might feel more appealing to save for something more fun, like a vacation or a new car, the Merriweathers value the sense of security that comes from knowing they have financial resources in place to deal with the unexpected.
Discipline is what it takes to block out the noise, commitment is what it takes to walk the path to financial success and patience is what it takes to reach the goal.