Hope for the best, but plan for the worst. Start an emergency fund and you won’t be caught off guard by the unexpected.
Your hot water heater explodes, you lose your job, a family member’s sick and they need your help. Life can throw curveballs and an emergency fund will help you take them in stride.
How it works
An emergency fund is a personal thing so the amount you need will vary depending on you. The standard recommendation is three to six months’ worth of living expenses, but you may want to consider bumping that up to nine months’ or even a full year’s expenses.
If you’re someone who can claw back expenses when an emergency happens, you may not need to save as much as someone who can’t compromise their lifestyle when things don’t go as planned. Be realistic about what you’ll need to get through a job loss, illness or other emergency. Underestimating your lifestyle requirements could leave you feeling the pinch in the case of an emergency.
Tips to set up as emergency fund
No matter who you are, three to six months of living expenses is a big pile of money. If you’re just getting started, it can feel downright overwhelming. Don’t get discouraged – break your goal down into a set of realistic goals. Start small with a goal of $500. When you reach that goal, give yourself a pat on the back and then set your sights on your next goal. A thousand dollars, maybe?
You can even make it simple by setting up an automatic recurring transfer to your emergency fund so it’s one less thing for your to-do list. You can set up your automatic transfer on the days you get paid to make it a top priority! Keep that up and you’ll have a nice emergency fund set up in no time.
It’s also a good idea to keep your emergency money somewhere where you can access it quickly should you need it. A savings account or Flex-Term GIC are great tools to help build your emergency fund. While the money should be easy to access, try not to be tempted to use it for occasional expenses, so you’re prepared for a real emergency.