I’m 27. And at 27, I still feel, after paying my bills, an almost irresistible urge to spend my remaining money on one (or five) of The Sims 4’s 15,000 expansion packs instead of putting them aside as a last resort. I have to make superhuman efforts not to plunge into the amount that is sleeping on my account and which will only be used if I really get into trouble.
Let’s talk about the pillow (or reserve fund). We’ve been talking about it ever since we were old enough to save a few cents. And if we are warned that we should not spend all our money “just in case”, we are much less likely to spend time explaining to us how to make a reserve.
Because yes, you need it. Absolutely. Catherine Levesque of the Quebec Financial Planning Institute, with whom I had a long conversation to write this text, insists: “You can’t foresee everything. But we can predict that an unexpected event will happen.
So, I start with a small course “Pillow 101”. The one I wish I had attended in school. And I’m not the only one: all the young people interviewed for this text made it clear to me that we would be a good gang if we could benefit from a financial education course.
How much to save: the three-month rule
An emergency fund (or airbag) is an amount of money that we will only draw from in the event of a major unforeseen event. “It can be job loss, disability, separation, and even a car breakdown,” explains Catherine Levesque.
The golden rule is to “precisely define the situations in which a person allows himself to go out.” [ce montant]” she continues.
This is not a fund for long-term projects or even travel. It’s essentially a reserve that could also be called “I’ve had a significant drop in cash flow and I’m really in the mud.”
We must budget for the equivalent of three months of expenses, which we determine by making a realistic budget for our cost of living. Catherine Levesque’s advice, including the cost of housing, food, medicines, essentials, telephone and Internet, as well as the amounts needed to pay off our debts.
It may be helpful to consult with a financial planner to help you develop your budget. A professional will make sure you don’t overlook or forget an important factor. For example, do we have private disability insurance that pays us back in the event of a breakdown? How much will we receive and for how long? Will we have to wait a long time before receiving this amount? Are you eligible for employment insurance? Can we afford to delay the repayment of some debts?
Savings, TFSA, RRSP?
Several readers have asked me where to put his pillow. While it may be tempting to try to increase this amount by investing it, it is best to avoid it.
“The rule for an emergency fund is that we should have quick and free access to it, and that the money should not be at risk,” explains Catherine Levesque. Savings account and TFSA, if there is no withdrawal fee, are the best options.
Therefore, we forget about RRSP and risky investments. Sorry for the guy on TikTok yelling at me to put all my savings into Tesla stock. However, he will be happy to know that financial planner Catherine Levesque advises against putting too much money on his pillow. Stick to the three-month rule and put extra money into accounts where it can grow.
To avoid accidentally touching my emergency fund (Sims 4 arrived so quickly), I opened a savings account dedicated to my pillow, which is automatically deposited with a small amount twice a month. I never touch him.
How to manage (but not too much) your pillow?
Rest assured, a pillow is not usually attached to a coffin. In fact, you can stop contributing as soon as you reach the expected amount.
“Once you have the desired amount, you can stop automatic transfers to the pillow, but continue automatic savings and put the money somewhere else, for example, on a trip,” summarizes Catherine Levesque. She also advises consulting with a financial planner to determine where to invest that money.
We still have to look at it from time to time and recalculate when our situation changes.
How not to be afraid of the pillow: a realistic guide
“We should not say that the target amount should be available overnight,” says Catherine Levesque. And I’m lucky because I’m the kind of person who tells himself it’s too much…and never starts saving money.
But in the course of the interviews conducted for this text, I realized that it is really better to divide your pillow into small amounts, set aside at a real pace. Otherwise, it makes you dizzy.
This is what 27-year-old Annie Theriault has been doing for a year now.
When she fell from work from 2018 to 2020 after suffering a concussion, the social worker had no funds for emergencies. “You, you are stopped, and the expenses do not stop,” she testifies.
There was no choice, Annie had to budget and set her priorities, which changed a lot in one year, as she and her husband will have their first child in November. Every two weeks, she deposits the amount intended for her pillow into the TFSA. And if she thinks that today she is doing well, financial issues still bother her a lot. But she reassures me:[épargner]it’s getting easier and easier.”
Like many young people who have to pay for their own tuition, Eliane Jourdaenay-Lemaire didn’t have the opportunity to save up for contingencies until she landed her first job and paid off her student debt. “Suddenly, good amounts of money began to arrive in my account, and I was not used to this! I set goals for myself and then started to create a financial cushion by withdrawing money with every payout.
For six months she had a satisfactory financial cushion. The fact is that Elian describes herself as “very tough” in relation to her budget. “I don’t have a huge salary, but I live beyond my means. If I hadn’t experienced insecurities at university, I wouldn’t have these habits today,” she explained to me.
(Also, if you want to have the same financial discipline as Elian, Catherine Levesque highly recommends scheduling automatic transfers every two weeks to your online bank account.)
Anxiety, sacrifice, peace of mind
“The emergency fund has a big psychological aspect,” Catherine Levesque explained to me when I asked her if setting up an emergency fund wasn’t like buying peace of mind.
But for many, that peace of mind comes at a cost.
Catalin Sandolas, 27, studies at ÉTS and works part-time. He and his girlfriend, with whom he lived for four years, were able to move into an apartment with an already established reserve fund. However, he finds it almost impossible to inflate it or even postpone it for long-term projects.
“We made our budgets, we looked at our spending, we cut where we could, and even there we can’t save,” he told me over the phone. After the bills are paid, there is very little money left, and if we want to put it aside for projects, we may have to use our reserve fund.”
Therefore, they deprive themselves of the opportunity to move, travel or change their aging car.
Catalin, of course, hopes that his situation will change. But parting with his emergency fund is out of the question, which reassures him very much. If any of them lose their jobs, they will have enough money to survive. “We are comforted by what we see [le coussin]so don’t touch it.
Amelie Fauber, 32, lived paycheck to paycheck for many years. She has just started knitting a pillow and is more aware of its importance than ever.
“I had cancer last year and would have been comfortable with a pillow,” says the speaker and host of the popular podcast Les Ficelles. But I’ve been carrying around a student line of credit that has become a personal loan since I was 18 and it’s ruining my life. Now I have a stable job and have been quietly building my own airbag for four months.”
“The next step is to look at my budget and my expenses. I experienced a lot of insecurities when I was a student, so I allow myself things that I didn’t allow myself before. It will be a confrontation!” she told me, laughing.
But these sacrifices are worth it. “For me, the pillow is also a sign of independence and autonomy,” she concludes. If something happens to me overnight, I know that I won’t have to depend on anyone.”
>> Read also: 10 questions about TFSA and RRSP and our tips for saving hundreds of dollars a year