Thursday, September 29, 2022

Tough Times and Emergency Funds

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(Contributed Article by Mervin Mitchel) I was listening to a YouTuber recently who’s main topic was about “why YouTubers and celebrities are going broke”.

He spoke about how many early YouTubers who started around 2009, 2010 and 2011, who found quick fame and money suddenly fell off the scene.

It was about this content creator whom we shall call Gemma. Gemma transitioned from YouTube to mainstream television and was able to work with some very popular celebrities of that time.

It turns out that this YouTuber, while living lavishly and portraying a grandiose image of success on the camera, eventually fell unto extremely hard times, brought upon by her own poor decisions.

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Although she had made millions of dollars from her YouTube channel, had to resort to begging friends to stay at their place after going broke and losing everything.

Nothing Lasts Forever

From my understanding of the story, Gemma was able to bounce back from her unfortunate situation after years hardship.

She is now rebuilding her reputation on YouTube and gaining success once again.

I give much credit to Gemma for being able to come back from that situation because not many people possess the mental strength to rebound like she has.

This brief story should serve as a lesson and a reminder that no matter how good things are now, one should always prepare for times of disaster.

Disasters can also take many forms, whether economic, natural, by accident or self-inflicted and as in Gemma’s case, the latter.

While you may have a steady and secure job or successful business today, a single unforeseen event can literally turn your life into a downward spiral, if you’re not prepared for it.

From my forty plus years on this earth, I’ve yet been privy to have or witness a misfortune that didn’t have or require some financial inducement to resolve.

It is your individual responsibility to insulate yourself from such emergencies however possible.

What I do know for sure is that if you have cash or can write a check to make a problem go away, then you don’t really have a problem.

If you have an emergency fund, you only have a mere inconvenience.

The Pain of Being Unprepared

Tough times only last as long as our ability to handle them.

If you live from pay check to pay check and never save, you open yourself up for a financial catastrophe that could happen at any moment.

Millions of people in the UK, USA and around the world have found this out the hard way during the 2020 and 2021 health crisis.

That situation was quickly exacerbated by global lock downs, supply chain disruptions and travel restrictions among other things.

Consider yourself very fortunate if you are in  a full-time job which pays all your bills.

Your neighbour next door may be experiencing the exact opposite and suffering in silence.

Imagine being married with a wife and two young children and without an income nor an emergency fund to cover your mortgage or rent, utilities, food and travel costs.

How do you face your family every day, when you get up knowing that you have not provided their basic necessities for them to live?

How do you respect yourself knowing that you didn’t make the right choices with your money; that you didn’t prepare adequately for a reversal of fortune during tough times?

When your lights or water get cut or the food money is exhausted, the pressure that follows is enough to cause a mental breakdown, as is evident in society today.

One bad circumstance can lead to another and another and another, until you end up in a worse situation like divorce, homelessness or maybe resorting to petty crime just to eat.

Financial frustration breeds desperation, which leads to limited, often very painful choices.

You may have to take jobs that are unbefitting of you.

Your living conditions might be uncongenial due to the inevitable fall of stature.

Associates who once welcomed your company will intentionally shun you because they now see you as an embarrassment that should be avoided.

The worse tragedy is the loss of self-respect, esteem and confidence in one’s ability to rise above this self-perpetuating environment.

For many, it is the death knell that seals them into a life equating to that of the ordinary animals in the wild.

Don’t let this be you.

Security in Emergencies

The benefits accompanied by a well-funded emergency fund can be likened to an insurance policy but better, it has the immediacy of access and withdrawal.

When life happens, you don’t want to be hampered by the formalities of third party approval, who’s criteria must be met to execute an obligation.

Neither do you want to be dependent on the general good will of friends, family or strangers, nor the benevolence of state social systems.

Such systems and good will have proven to work mostly towards the detriment of the recipient.

Mainstream advice says you need three to six months of living expenses for emergencies but what if your situation prolongs beyond that? Then what?

A minimum of one year’s income saved in an emergency fund is about the starting point where you begin to have financial peace of mind, providing you are debt free.

With current inflation running wild and the increasing uncertainty in the economy at home and abroad, you’d do well to think three years ahead to be secure.

Three years of accessible cash and zero debt not only enables you to cover short term emergencies but also affords you a high degree of freedom and flexibility.

At this level you can continue to sleep well, keep your sanity and prioritize the more important aspects of your life with little fear of the unknown.

The mortgage or rent still gets paid, food and utilities are not stressed over and your wife or partner is not screaming at you every night for fear of becoming destitute.

If your car and everything else is paid for, what’s there to worry about?

There won’t be any debt collectors at your door nor will your car be repossessed.

You simply go out and get another job.

Or if you are entrepreneurially minded, starting a business might be a more viable option.

Do both, which might be far better for you and your family’s financial future.

When disaster strikes the one who wins is the person who is most nimble.

The individual who lives modestly below their means, saves aggressively, has zero debt and pays cash for everything is usually the one least affected.

This same individual is also the one who is, usually, in a position to take advantage of opportunities that arise during tough times.

When everyone else is scrambling to pay their bills and keep a roof over their heads, those with large cash reserves are making moves that they couldn’t have otherwise made.

That unassuming rough looking guy in your neighbourhood who seems to never have a day off, may be the one paying in cash for your Mercedes, that you desperately need to sell to pay the mortgage.

That unassuming guy may also be the one with enough cash reserves to buy your house before it goes into repossession by the banks.

Don’t think that this is all too far-fetched.

Such things are happening now during the current crisis. They were prepared long before this financial crisis started.

Hence the reason why they can make such moves and get those deals on their terms, because they have emergency funds and are flush with cash.

Do you still think that having an emergency fund for tough times is unnecessary?

Or do you think having three years of income saved is a bit much?


Disclaimer: The views and opinions expressed in our Contributed Articles do not represent the viewpoint of St. Lucia Times. These Contributed Articles are  reader submitted. If you would like to submit an article for review and publishing, feel free to register here.


 

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Mervin Mitchel
Mervin Mitchel
I am a St. Lucian living in the UK for more than thirteen years. An enthusiastic weight lifter dedicated to staying in good physical shape. I enjoy reading on the subject of personal finance and take a keen interest on global monetary policies and their impact on global economies as well as ordinary individuals.

4 COMMENTS

  1. The information provided here is very useful, however, I’m not sure how practical it is for most people. An emergency fund is a great idea and every person should have one but it is difficult for the average person to have 3 months savings in an emergency fund far less one year’s worth. A lot of people live paycheck to paycheck even if you may not be able to tell. I think persons need to set small savings goals and gradually build on those. Pay off debt if possible. In my experience it helped to pay off small debts and then tackle the higher amounts. Other persons may prefer the reverse. As much as possible, try not to accumulate debt. Save and buy in cash if possible particularly for things that don’t accrue value.

    • On Looker, thanks for your thoughtful comment! I agree that a lot of people live paycheck to paycheck but should they even accept this as the rule in their finances. People are stuck on debt because they’re addicted to it, they think they can’t do without.

      It’s simple! Once your debts are paid off, take those same payments that used to go towards the debt and now put it in a savings account (maybe name the account FREEDOM) because that’s how you will feel when you have no debt. At first it will be painful but do it anyway and pay cash when you have the full amount saved for the stuff you want. Eventually it will become normal for you to pay in cash. When that happens you will realise your own economic power and will never want to give it up for the chains of consumer debt.

      It worked for me. It can work for anyone who is willing to discipline themselves.

  2. g.w, you are so right. Unfortunately this behaviour is only the effect. Most of us weren’t taught how to manage our finances. Furthermore, the internet and social media has brought on us a bombardment of addictive optical illusions which has convinced the majority that they deserve to live the good life. (whatever that is!)

    People want to be social media celebrities and show off perfect images of themselves living their best life and will spend everything and then some to portray this life. Meanwhile in reality they live in quiet desperation but who cares as long as they get that perfect pose for the camera.

    The tragedy is they never realise that they can actually create meaningful wealth of whatever size, large or small, by being productive and contributing some value to their community and society. Look how dependent St. Lucia is on food imports when we have vast amounts of fertile agricultural land. Yet no one wants to grow food not even to sustain themselves. Unless we educate ourselves on how money works and how economics work we will easily be fooled by those who want to exploit us.

    The irony is we can do far better if we become self reliant and learn to exploit ourselves, but it starts with just a little reading and application.

  3. wow i saw this and passed by it so many times not even thinking anything of it and then i finally said let me read it and wow this had me thinking and is also very useful and what you said is so true. Saint Lucians most of them especially the broke ones all their care in the world is to go out and party and drink and the girls have nice clothes and hair and nails and most times they dont work any where and you would think that this covid disaster would teach them a lesson to make and save money but they are the ones that will come and ask you to buy a drink for them or give me twenty dollars today uh and would never try to update their level of thinking and living and when you say you dont have they have all kinds of things to say about you

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