When it comes to building your financial plan, there are the obvious elements that we all know about. Daily banking and budgeting, managing your debt, and saving for retirement. But what about having money in case of an emergency?
Today, 26% of Canadians don’t have an emergency fund, and another 40% only have enough to cover a month of expenses. If you lost your job, got sick, or needed major car or home repairs, would you be able to cover your bills?
What is an emergency fund?
Let’s start with the basics. An emergency fund will help you avoid going into debt over unexpected costs, giving you peace of mind during a challenging time. It’s not meant to be your vacation fund; it’s your personal insurance policy in case you find yourself out work or needing to cover a large, unanticipated expense.
Some people carry their emergency fund in their daily chequing or savings account, while others set it aside in a tax-free savings account. Either way, your money is readily available when you need it.
How much do I need in my emergency fund?
It’s recommended to have 3-6 months’ worth of expenses saved in your emergency fund, to cover your monthly costs if you’re out of work. However, if you’re currently paying down debt, your emergency fund should be smaller, in the range of $2,500 to $5,000. That will help you cover smaller payments, while allowing you to focus on paying down your high-interest debt.
