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How to set up an emergency savings fund


young girl organizing money into savings jars

COVID-19 has probably brought up a lot of things you didn’t think about much before. For example, what would you do for money in the case of an emergency? The good news is, it’s easy to understand and set up an emergency fund. Let’s begin.

 

What is an emergency savings fund?

An emergency savings fund is like a safety net - instead of saving up for a specific goal, you use it to cover unexpected, necessary expenses or get you through a difficult time, like if you lose your job.

 

Why do you need an emergency savings fund?

You can’t plan for everything

When you have money aside to cover unexpected expenses you’ll be prepared to deal with things like car repairs or a medical emergency.

It helps you avoid debt

If you don’t have emergency savings you may have to take on costly credit card debt or get a loan to get by when unexpected costs come up. With an emergency savings fund, you don’t need to worry about that.

Enjoy some peace of mind

Having some money set aside, even if it’s just a little, can make a big difference when it comes to reducing stress.

 

What counts as an emergency?

An emergency fund isn’t for all big purchases, like a new TV. Some expenses can feel urgent, but they aren’t actually emergencies.

Expenses related to these situations would count as an emergency:

  • Losing your job or getting an unexpected pay cut

  • Replacing a major appliance, like your fridge

  • Urgent home repairs, like replacing a broken furnace or leaky roof

  • Car repairs

  • A family member who needs extended care

  • A visit to the Emergency Room

Not an emergency:

  • A broken television

  • A last-minute birthday gift

  • A cell phone upgrade

 

How much should you keep in your emergency savings fund?

The standard advice is that your emergency savings fund should cover about 3 to 6 months of living expenses. Lately, some people are suggesting you might want even more - like 8 to 12 months. Six months is a good place to start, though. This can sound intimidating, but saving is a process - the trick is just to get started and keep at it.

 

How to start savings for emergencies

  • Every cent counts, so start saving anything you can, even small amounts are helpful. Learn more about how pre-authorized contributions can help

  • Make a plan for reaching your emergency savings goal (like 6 months of expenses) by tracking your income and expenses. To get started, try this free budgeting tool from the Government of Canada.

  • Be patient - it can take months or even years to build an emergency savings fund, so don’t worry if progress seems slow. Keep at it.

  • Consider using a savings account with easy access to funds so you can get at your money when you need it.

 

Learn more about savings

How to save money guide
A guide to emergency savings from the Canadian government
Save faster with pre-authorized contributions
What is financial wellness?

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