Emergency savings or an emergency fund is money you keep on hand for quick access to help you through life’s unexpected surprises- like job loss, medical situations or even car repairs. Having a little extra cushion can reduce stress and can also prevent costly alternatives like high interest loans or payday lenders.
If you don’t have anything set aside for a 'rainy day', you aren’t alone- almost half of Canadians live paycheque to paycheque and don’t have any type of safety net. We’ve put together some easy things you can do to start regardless of where you stand with your current personal finances.
Set a Goal
The first step is to create a budget so you can see exactly what you have coming in and going out each month. Ideally you want to build your emergency fund to cover between three to six months of living expenses. However, if you’re currently paying down debt, your emergency fund can be a little smaller - try and aim for between $2,500 to $5,000. This allows you to cover smaller unexpected expenses, while still focusing on paying down existing debt.
Once you have a goal you can start planning on the things you can do to get you there.
Look for Ways to Save Money
Take a look at your budget and where you might be able to trim some expenses without radically changing your lifestyle. Common monthly expenses like insurance, credit cards, car, or mortgage payments, can sometimes be reduced if you take the time to shop around for lower rates. You can quickly compare and see if there are options that match your credit report profile when you sign up or log in.
Look into a Side Hustle
After you have looked at expenses and payments, you could explore whether there are opportunities to make extra money outside your main source of income. The ‘gig’ economy has never been more accessible, with lots of choices that easily fit into your schedule. Our team compiled a great list of websites that can help you earn money from home.
There are also things like decluttering and seeing if there are things you don’t use anymore like furniture, clothing or collectables- consider sites like Poshmark that let you mail items- just be safe by disinfecting any packages.
When you’re trying to build savings the idea is not to wait for ‘money to be leftover.’ Instead make a conscious effort to plan ahead.
One strategy is to set up an automatic transfer from your checking into a high-interest savings account when you get paid. Think of it as ‘paying your future self’ every month.You can also speak to your financial institution to see if you can restrict withdrawals to help curb temptation.
Whichever way you set-up your account, keep it completely separate from your monthly budget. If you aren’t counting on the money to cover expenses, you’re less likely to ‘dip in’ and slow progress to meeting your goal.
Every Penny Counts
Start with small amounts, $5-20 a week, and see what you can manage. Building savings doesn't have to be overwhelming; start by building it into your routine and it will seem far less daunting.
Make sure your money is working for you. A high-interest savings account (HISA) can earn you a greater return on investment with no extra effort, and can provide 20 to 25 times more than traditional savings accounts.
Online institutions like EQ Bank offer some of the most attractive options with an interest rate of 2% on their Savings Plus Account. Sign up or log in to check your free credit report and see savings accounts across the marketplace that fit your profile.
The Bottom Line
Remember, there is no ideal time to start an emergency fund, but even small steps can make a big impact on your long term goals. Checking your credit score regularly is a good way to track your financial health and ensure you have more options with lenders and credit bureaus.