How to make your emergency fund work for you – without the hard work
If you find yourself relying on your credit card or line of credit when you’re faced with a situation you didn’t see coming, you need to keep reading. No one wants to think an emergency will happen to them, but we all know that unplanned expenses come up. Raise your hand if you want to pay exorbitant interest charges on those unplanned expenses. Yeah … didn’t think so. Any way you slice it, an emergency fund is a keystone of your financial well-being, but how do you get started?
Let’s get into it.
How much should I have in my emergency fund?
Many people will tell you three months’ salary is the general rule to save for an emergency fund, and it's a great place to start. That said, everyone’s situation is different. If you can comfortably save more than that, go for it. Conversely, if three months’ salary seems unachievable, don’t let that deter you from saving altogether. It may take time to build your emergency fund to meet your goal, so start small, and build as you go.
Where should I keep my emergency fund?
As a rule, it’s best not to invest your emergency fund, as it’s there for … well … emergencies. You don’t want to be stuck with no access to your money if something unexpected does arise. Best to keep it in a high interest savings account that doesn’t charge monthly fees. We can suggest a really good one.
How do I build an emergency fund?
Let’s start with the obvious – your paycheque. Start by determining what percentage of your income you can comfortably sock away without missing it (too much). Many advisors will recommend between 15-20%. The good news? You can automate your savings by setting up an EFT. The great news? With a high-interest savings account you can build those savings without lifting a finger.
Maybe you’re past the days of Grandma sending you birthday cards with a shiny new $20 in them, but sometimes windfalls come in other ways. Did you get a bonus or tax refund you weren’t expecting, or did a pal pay you back for a dinner you completely forgot about? Whatever it is, if you get an unexpected payday, reroute those little surprises to your savings account and watch your emergency fund grow.
Think about your favourite credit card. Ol’ faithful. The one you have saved in your favourite apps so you don’t even have to get off the couch after hitting “add to cart”. Now think about what that card does for you. Cash-back credit cards can be your emergency fund’s best friend. When those rewards come rolling in, why not give your savings a little love?
Love it or hate it, the gig economy is here to stay. If you have the time and emotional bandwidth, starting a side hustle could be for you! And if it’s lucrative, use some of those spoils to pad your emergency fund for times when the grass isn’t so green.
When should I use my emergency fund?
You’ve worked hard to build it, now let’s discuss when it makes sense to actually use it. While we’re not here to tell you what your definition of “emergency” is, we’ve compiled a (non-exhaustive) list below of some situations where having additional savings could relieve significant financial stress.
- Car repairs
- Unexpected home repairs
- Surprise vet bills
- Medical expenses
- Major appliance purchases
- Starting to care for your elderly parents
- Emergency travel
- Job loss or starting the transition to a new career
facebook
Instagram
X
