Emergency fund

Anything can happen in life. You might lose your job, need a new roof, or a car. You might just really need to take a vacation! When you’re living from paycheck to paycheck, there isn’t a lot of room in the budget to easily take care of these expenses or to even treat yourself from time to time. That’s where an emergency or rainy-day fund can help.

Not having an emergency fund to help you during difficult times, you may have to choose between going into debt and changing your lifestyle. 

If you can take from your emergency fund when faced with surprise expenses, you’re more likely to avoid paying interest on the loan, line of credit or credit card you might otherwise use to cover that cost.

Reasons you may need to use your emergency fund: 

• Job insecurity
• Auto accidents and repairs
• House repairs
• Illness and injury
• Effects of extreme weather

When deciding how much to put away in an emergency fund, you should consider your costs. Take a look at your finances and find out what your monthly expenses are for:

• Mortgage or rent
• Utilities (gas/water/electric/heat)
• Phone bills
• House or car insurance
• Transportation costs (including gas, transit, or Uber)
• Groceries
• Credit card debt, personal loans or other debt
• Pet costs
• Other (any other regular monthly costs you have)

Save enough to cover at least 3 to 6 months of expenses. Saving can take care of a job loss or unexpected expenses like house or auto-repairs, illness, natural disasters or pet emergencies.

Use our emergency calculator to find out how much you should have in your emergency fund.

It’s a good idea to keep your emergency savings in separate accounts so that you don’t accidentally spend the money on other things.

While you might be tempted to invest and make your emergency fund grow faster, make sure you have money, which isn’t always possible with certain investments like non-redeemable GICs or mutual funds. 

Our best two tips:

Tip #1

Look at higher interest savings accounts or tax free saving accounts (TFSAs) to get started. These accounts give you growth options with accessibility to your money. A conversation with your financial institution can help you pick the best account for your needs as there are tax implications for savings accounts and yearly limits for TFSAs.

Tip #2

Set up pre-authorized contributions (PACs). You’ve probably heard this term before, but a PAC is a recurring automatic withdrawal from your account that is put somewhere else, like an investment or savings account. Once you set it up, you don’t have to think about it again and your savings are growing every month!