If this year has taught us anything, it’s just how important an emergency fund is. An emergency fund, also known as a contingency fund, is money you set aside to pay for unexpected expenses. The reality is, most of us will likely have to deal with a financial emergency at some point in our lifetime.
Here are a few tips for getting started with an emergency fund.
Open a savings account
Choosing the right type of account to build your emergency fund is important. It should be easy to access your money quickly when you need it. Not sure where to start? Check out the Account Comparison Tool from the Government of Canada or contact your financial institution to make sure the account fits your needs.
What to look for in a savings account:
- its separate from the account you use for your day-to-day transactions
- have no or low transaction fees
- able to make withdrawals without penalty
- earns interest on the money you save
Calculate how much you will need
When it comes to how much, recommendations vary, often sitting somewhere between three to six months worth of income.
What does that look like? You can find how much your salary is after tax with this handy Income Tax Calculator.
Build your emergency fund
I know what you are asking… where is all that money going to come from? Don’t panic! It can take months, or even years, to reach the desired amount for your emergency savings. The key is to get started and keep going until you have reached your goal.
Here’s a quick look at how weekly savings can add up to over the year.
|Amount of savings per week||Total amount of savings per year|
Setting up a budget can help to not only figure out what your fixed and variable spending looks like it also helps you to make conscious choices on where that money goes and emergency savings should be factored in.
Once you have set up a budget and are making regular contributions into your emergency fund, take advantage of every opportunity that can help you increase your emergency fund. Deposit any additional amount (bonus or unexpected monies) into your savings account whenever possible.
- a tax refund
- a pay raise or bonus at work
- sell something (for example, vehicle, jewelry, furniture)
- get money as a gift
If you are carrying debt and making payments, once you have paid off that debt, take the money you were putting towards your monthly payments and deposit them into your savings account instead. These payments are already included in your budget, and this is a way to put the newly available money to good use.
What if your budget is already maxed out? Look for other ways to increase your income. Side gigs can offer a boost to your regular income without a whole career change. And with the variety of options out there, chances are you can find something you enjoy doing.
Having an emergency fund can provide peace of mind, and a little less stress in our lives is an amazing thing.
Your best interest is my only interest. I reply to all questions and I welcome your comments. Like this article? Share with a friend.
Steve Garganis 416 224 0114 firstname.lastname@example.org
As an industry insider, Steve will share info that the BANKS don't want you to know. Steve has appeared on TV's Global Morning News, CBC's "Our Toronto" and The Real Life TV show. He's also been quoted in several newspapers such as the Globe and Mail, The Toronto Star, The Vancouver Sun, The Star Phoenix, etc.