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 a solid emergency fund will help you take them in stride.
An emergency fund is a personal thing so the amount you need will vary depending on you. The standard recommendation is 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.
No matter who you are, six months to a year’s worth of 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 smaller goals. Start 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 - $1,000, maybe? Keep that up and you’ll have a nice emergency fund set up in no time.
You can take some pressure off your emergency fund by budgeting for exceptional, but routine, expenses. While an unexpected surgery for your dog or cat may be an emergency expense, the costs that come with regular vet visits shouldn’t be. Routine maintenance on your car can be expensive, but it’s also to be expected. Your emergency fund will grow faster if you don’t need to tap into it for expenses like these.
It’s 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 Tax-Free Savings Account are great tools to help build your emergency fund.
Call our Contact Centre at 1.866.863.6237 for more information on emergency funds, or get a TFSA started today through online banking.