Are You Financially Fragile?

I just read some research that in the United States nearly half of all Americans are considered financially fragile. I believe that it is close to the same here in Canada. So what does that mean?

Let me ask you this, could you come up with $2,000 if you needed to unexpectedly in the next month, or would have to resort to desperate measures to come up with the money. …credit cards or loan.

The other surprise in this article is that you might think that this is a low-income problem. It isn’t, a lot of middle class families – including 25 percent of those earning between $75,000 and $100,000 — are also “fragile.” Now the United States has definitely had a bigger problem than Canada, but with people remortgaging to their maximum loan allowance while our interest rates are low, we are on a slippery slope here in Canada too.

So, how can you fix it? If you want to save money and keep it out of reach, you have to have a plan. As a financial expert for over 15 years I recommend that you have an emergency fund to handle any unexpected costs. I like to call it an opportunity fund personally! I don’t know about you, but for me I would rather save for an opportunity than an emergency!

This money needs to be put into a place where there is a perceived barrier to getting at it. Internet banking is a good choice. Why, because you can set up accounts with no fees (at most banks). They don’t have minimum balance account rules and they may pay higher than average interest rates. In order to get your money out, you have to transfer the money back to your checking account – which is easy to do – but again if you have a plan (and discipline!) to leaving that money you will think about it before moving that money.

I also recommend putting money immediately (once you get paid) into a savings account (short term goals) I like to call it your ME account! Do you pay yourself first?

Additionally, you should keep a separate account for long term goals – this could include an RRSP account. When you lump it all together with other money for savings it will give you a false sense of how much money you actually have available for opportunities (emergencies).

Need a plan? Do you want me to help you with your money strategy?