It’s an Emergency!

Almost every mainstream personal finance article will contain the same advice: your first priority should be to build an emergency savings fund, then pay off debt then invest for your future in a RRSP/TSFA.  I totally agree with the paying off debt and investing parts, but I always thought the idea of having an emergency fund was a waste of capital.  Why should I put several thousand dollars away and earn a pitiful 1% – 2% return when I could buy a preferred share earning 5%+ or even more!  I sometimes salivate over the dividends and interest my money could earn me.

Luckily my wife is very financially conservative and insisted of keeping a good chunk of money away in a high interest savings account for a rainy day.  It just so happens that life has thrown a slight curve-ball meaning we need access to a large chunk of money in a short time.  Nothing life threatening, but it is quite nice to know we have that money waiting for us to use it without needing to sell down my stock portfolio at what is a very inopportune time as many of my current holdings are underwater.

I have had to sell some preferred shares with capital loses in excess of the dividends I have received from them so far which stings a bit, but luckily I don’t have to sell too much to get what I need.  So if you are like me and on the fence about needing to have an emergency fund and don’t like your money only earning 1% – 2% interest just know that needing to sell higher yielding investments in a fire sale could cost you even more. Additionally the peace of mind of having some cash in reserve is well worth the opportunity cost.