Three-tiered savings: a why-to guide

Last week, my car overheated on the Deerfoot. For those of you who don’t live in (or like) Calgary, Deerfoot Trail a major road. The most major road, in fact, that winds through the city. I called a tow truck, and then I called my boyfriend to collect me. Of course, I also had to bring my greatest gal pal in on the action via text message.

The sun blazed down, traffic whipped by and I wondered about the peril I might be in:

Although I freaked out about whether or not a semi was going to strike me dead on the side of the road, please notice what I was NOT worried about: money. I wasn’t even thinking about the repair costs to my car.

This is new. Very new.

Normally, my FIRST concern would be money – well above life and limb. I’d be calculating the amount of space left on my credit card, and what money was coming soon to pay-off the charges incurred. Not this time. And it’s all thanks to a miracle called planned spending savings/emergency savings. I’ve already written about the need to make saving important.

I’ve also written about a book called Financial Recovery by Karen McCall, and here is what I learned from that book about savings. You need three kinds:

1) Planned Spending and/or Emergency Savings
Why you need it: for emergencies (like your car overheating on a major road), and for expensive perks (like a vacation or a giant flat-screen TV).
Why you REALLY need it: Peace of mind. S*%t happens. Life is not smooth, and a credit card is not an insurance plan. Nor is a credit card a justifiable way to send yourself to an all-inclusive resort in Mexico.

2) Job Absence Savings
Why you need it: in case you lose your job or someone loses it for you. You may also want to take an absence from your regular income for any number of reasons, like having a baby or going to art school.
Why you REALLY need it: Again, peace of mind. NO ONE has job security anymore. There’s simply no such thing. We all need to prepare for the possibility that our income could evaporate at any moment.

3) Retirement Savings
Why you need it: I’ve also written about this before, so I won’t go into too much detail other than to say…
Why you REALLY need it: Peace of mind, of course.

I highly recommend McCall’s book if you want to get your financial life in order overall. (You can also get it at the library…for free). I read it only six months ago, but following its sage advice has changed my life dramatically.

You may not think you have room in your budget for savings, let alone three kinds. Take a closer look. You need a plan, and I promise there’s some give somewhere.

It’s worth it. My car will cost me $500 to fix. Not great. But the difference between having that money to hand over and relying my credit card to save the day is so vast that it’s truly priceless.

~HS

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2 thoughts on “Three-tiered savings: a why-to guide

  1. Caitlin says:

    I agree on the importance of having a peace of mind. My emergency fund could easily wipe out half of my student loans but I like having that cash in case there is a lay off, health emergencies, etc. It may cost me more in the end because of the interest rates on student loans but doing it this way helps me sleep better at night, which is more important.

    • Caitlin,
      I totally agree.
      I used to think that it was weird to have savings, but also have debt. But McCall’s book talks about saving your way out of debt. It seems counter-intuative, but it’s totally working for me.
      Good luck on your journey.
      H

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