Illusion of Security

My day job requires me to enter into a lot of people's yards. Recently, we've reached a part of Vancouver where the houses are bigger, the dogs are meaner, and almost every house has a gate and a fence. These aren't the normal gates though, the nice ones where you walk up to, open the gate, and walk in. Oh no, these gates are the ones that require you to buzz an electronic system (with camera and speakerphone) in order to gain access. These people have built their fortresses for security, but a lot of the time, it is merely an illusion.

For example, a lot of people will have two gates, one of which is locked, the other is wide open. What purpose does the locked gate serve? Does it keep me out of your yard? Would it prevent a burgler? Other gates are locked, but the fence stops three feet short of the gate, allowing access. Some people have incredible security on the front of their houses, but not the back, signs warning against dogs, but no dogs, and alarm company logos next to doors that are propped open or unlocked.

I've decided that for the most part, people are seeking the illusion of security as much as they are seeking actual security. It is merely the sense of feeling safe that we as humans so desperately desire. It doesn't matter if the fence will actually keep out someone intending to rob us, because in actuality, not even a six foot fence would stop a determined man. But just knowing that it is there, and that it might deter someone, even if just for awhile, is worth it.

I think a lot of us wish that we had more financial security. So we build up an illusion of security around us, by ignoring our debts, or by pretending our credit limit is high enough to handle emergencies. Maybe we have a small emergency fund set aside, but no plan for a job loss or retirement. Financially, there are a lot of things that we could, and perhaps should be worried about, but we think we're okay as long as at least one of our gates are locked.

Where are the unlocked gates in your life? Do you feel secure? Are you one paycheck away from being broke? Do you want a sense of security, a sense of serenity? I know I do.

How to Start An Emergency Fund

Do you want to feel free financially? Do you want to reduce stress on your life, feel more comfortable at the end of the month, or even start to sleep better? All you have to do is start an emergency fund.

What is an Emergency Fund?

An Emergency Fund is a savings account set aside for emergencies. Quite simply, it is a set amount of money that you will not touch unless you absolutely need to. Emergency, in this case, does not mean a sale at Winners, or a new CD that you absolutely must have. It is something more significant, like unexpected car maintenance, sudden unemployment, emergency dental work, etc. An emergency fund is money that you would otherwise have to borrow to deal with the inevitable unexpected expenses of life.

Why Do I Need an Emergency Fund?

Life, as we all know, is full of unexpected surprises. I entered into my last year of college with an old(er) PC that had been sitting around all summer. After we got moved in, I set up my computer, plugged it in, and turned it on. It worked for about 6 minutes, and then "poof". Black screen, smell of burning, no more PC. Whether it was the power supply or the motherboard, I will never know, but I do know that I was suddenly facing 8 months of papers without the ability to type.

A few months later I was driving my then girlfriend now fiance to the Horseshoe Bay Ferry in my sister's little Toyota. The engine decided to leave all of its oil somewhere in between the terminal and exit 4 on the No. 1 Hwy, and suddenly car repairs were a necessity.

Emergency funds allow us to not only pay for those expenses when they do come up, they allow us to relax beforehand, knowing that when they come, we will be okay. After I returned from a vacation in Hawaii, I was facing the rather immediate prospect of unemployment with a very small amount of money in the bank account. An emergency fund would have significantly reduced my stress over the six or seven weeks I went without work.

Isn't that What Credit Cards Are For?

No. Credit cards are necessary evils, but should never be relied upon. For one, anything you put onto your credit card can be charged interest. So if your emergency is costing you $200 and you can't pay it all back within the next 30 days, then you'll be paying $220 for your emergency instead of $200. Twenty bucks not so bad? What if the emergency is $2000, and you have to pay $2400 after interest charges? What if you can't pay it back at all?

In addition, credit card companies enjoy doing mean things to their customers. Like, cutting your credit limit - even below your balance, or canceling your card altogether while you're traveling. What a lot of people forget is that your credit limit is something that is arbitraily decided by your credit card company, and can be changed whenever and however they see fit. Your credit limit does not have a guarantee on it. The bottom line is that you cannot rely on credit to be there when you need it.

How Much Money Do I Need For An Emergency Fund?

If you read personal finance blogs, you'll read advice that ranges anywhere from $1000 to six or nine months worth of monthly expenses. Trent from The Simple Dollar wants an emergency fund that would cover 12 months of expenses. JD from Get Rich Slowly has an emergency fund of $5000, enough for three months of his mortgage payments, or two months of full expenses. The truth is that your emergency fund is a form of risk management, and its size is dependent on how much risk you are comfortable with. Apparently, for the majority of us, we are willing to take a huge amount of risk, because we don't have an emergency fund. I, for one, am not terribly comfortable with that risk, and am therefore starting to save an Emergency Fund bit by bit.

You are the only person that can decide how big your emergency fund can be. Many factors will contribute, including the stability of your income/employment, your monthly expenses, if you have any dependents relying on you, etc. The point of the emergency fund is to reduce your stresses, so save up enough so that you feel comfortable. The article that I first linked to by MSN Money recommends that you save up at least $500. The study referenced suggested that $500 in the bank will improve your life, both financially and mentally. I agree.

How to Start an Emergency Fund

If you've already opened a high interest online savings account, and if you have been following the advice to start saving some money, then you are already set up. All you have to do is create a sub account labeled "Emergency Fund" and start up an Automatic Savings Plan (ASP) to regularly deposit a small amount of money into the account. It doesn't need to be a lot, and it doesn't need to be a full $500 right away. I've been allocating $25 per paycheck to my Emergency Fund, which is currently around $200. It is money that I won't miss because it is gone before I even had the chance to count it, and it gives me an incredible sense of peace because I know that I have a few hundred dollars waiting for me, just in case.

So go ahead, set up your bank account to take a few bucks off each month. If you're worried about your finances, start small, with ten or fifteen dollars. I promise that you won't miss it.

Potential savings: $20+ per month. Total savings this month: $83