Emergency Fund 101: Why You Need One

emergency fund

An emergency fund is the money you save up to cover unexpected expenses. Emergencies can range from a job loss to a medical problem, from car repairs to an injury, and more. While an emergency fund is a must in today’s economy, many Canadians do not have enough savings to pay for unforeseen expenses.

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How Canadians Are Doing

Statistics Canada sounds some warnings about Canadians’ financial health. In 2019, pre-pandemic, the majority of Canadians (65%) reported being able to keep up with their bills and payments. However, that leaves more than one-third (35%) who are falling behind every month. This is a significant proportion of the population, numbering in the millions.

Almost two-thirds (64%) reported having an emergency fund in 2019, which again leaves out more than one-third of the population. More than 1 in 3 Canadians have no money saved for an emergency. Generally speaking, Canadians with household incomes of at least $40,000 and those who’ve paid off their mortgage are more likely to have an emergency fund. In the meantime, individuals who have never married, are separated, or divorced, as well as those who cohabit with a common-law partner, are less likely to have such funds.

This leaves many Canadians vulnerable to sudden reversals of fortune. Life is unpredictable, so having an emergency fund is essential to safeguard your future and your peace of mind.

Tips on Building Your Emergency Fund

Start by opening a savings account. Preferably, you can earn interest on the money you save in this account. It must also have no penalties for withdrawals. A monthly budget can help – set aside a small amount each week or each month to put into this account, which should be different from your day-to-day chequing account. Over time, even a small amount of weekly or monthly savings will add up, allowing you to cover most emergencies.

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Millions of Canadians do not have any money set aside for emergencies. Do not be part of this percentage group – work on building your emergency fund, slowly but steadily.

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