Emergency Savings Funds and Sinking Funds, explained:
DON'T SCROLL AWAY - YOU NEED TO KNOW THIS!
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DON'T SCROLL AWAY - YOU NEED TO KNOW THIS!
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Emergency Savings Fund (ESF):
Savings to prepare for UNEXPECTED events, such as job loss or expensive repairs.
Avoids the need for debt to cover for lost income or costly events.
Any setbacks WITHOUT an ESF can put you behind several years because of debt.
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Savings to prepare for UNEXPECTED events, such as job loss or expensive repairs.
Avoids the need for debt to cover for lost income or costly events.
Any setbacks WITHOUT an ESF can put you behind several years because of debt.
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Accumulating an ESF takes time, but is definitely worth it; allows you to reach financial goals more easily.
Any loss in purchasing power due to inflation can be looked at as INSURANCE to protect assets.
An ESF prevents having to to sell stocks and real estate at a loss.
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Any loss in purchasing power due to inflation can be looked at as INSURANCE to protect assets.
An ESF prevents having to to sell stocks and real estate at a loss.
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Sinking Fund (SF):
Savings to prepare for EXPECTED events, like vacations and purchases.
Ensures you avoid debt to pay for expenses you know are coming.
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Savings to prepare for EXPECTED events, like vacations and purchases.
Ensures you avoid debt to pay for expenses you know are coming.
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You can accumulate money in a sinking fund for as long as you need.
These savings should be kept separate from retirement savings (retirement savings should be invested).
For example, you need to buy tires for your car a year from now for $600. You could save $50/month.
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These savings should be kept separate from retirement savings (retirement savings should be invested).
For example, you need to buy tires for your car a year from now for $600. You could save $50/month.
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Savings can be kept in
1) High Yield Savings Account (HYSA)
2) Guaranteed Income Certificate (GIC) or Certificate of Deposit (CD)
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1) High Yield Savings Account (HYSA)
2) Guaranteed Income Certificate (GIC) or Certificate of Deposit (CD)
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HYSA: A type of savings account that provides higher interest rates than a regular savings account.
Example:
Regular savings rates are 0.2%.
HYSA savings rates are 3%
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Example:
Regular savings rates are 0.2%.
HYSA savings rates are 3%
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GICs (Canadian) and CDs (US) are fixed income products that provide a guaranteed return over a fixed period.
Most are provided by financial institutions such as banks.
- Low risk
- Usually insured
- Provide a lower return than bonds, stocks and real estate
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Most are provided by financial institutions such as banks.
- Low risk
- Usually insured
- Provide a lower return than bonds, stocks and real estate
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In my opinion:
ESF: Ensure you can get your money quickly! HYSA may work well, but make sure you can access the funds at will.
SF: Either one works. You may want to use an HYSA for shorter term savings (0-3 months) and GICs and CDs for longer terms (3+ months).
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ESF: Ensure you can get your money quickly! HYSA may work well, but make sure you can access the funds at will.
SF: Either one works. You may want to use an HYSA for shorter term savings (0-3 months) and GICs and CDs for longer terms (3+ months).
(9/9)
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If you found value in this post, make sure you like and retweet the first tweet, and subscribe to my FREE newsletter.
Rajatsonifinance.substack.com
Thanks for reading!
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