Step by Step: Building an Emergency Fund

No matter where you are in life, it is an advantage to have an emergency fund to fall back on when finances get tough. A rainy day fund can be a financial asset for costs from home and car repairs or utility bills to vet invoices or budgeting between paycheques. With this financial safety net, you can be more financially prepared for whatever may come your way.

Emergency Fund, Defined

So, what is an emergency fund? Simply, it’s a designated liquid account set aside for surprise financial upsets or unexpected expenses. It is a proactive way to financially prepare if life changes your plans. If unfortunate money circumstances arise, these funds can help cover bills, give you peace of mind, and alleviate some stress.

Saving for an emergency fund is different than saving for a vacation or holiday account. Sure, you’re still putting money aside for a specific goal. But with an emergency account, you will not spend the money unless you have an emergency. You’ll need to define what an emergency situation means to you. A vacation or holiday account basically has a timer on it. You already know you will spend what you’ve saved in the account at a specific time.

You don’t need to wait until you have a large amount to start an emergency fund. Every saved dollar gets you close to your goal.

What’s the Magic Amount to Save?

As each person’s financial situation is different, there is not a one-size-fits-all answer. The objective is to just start an account where you can add money. It doesn’t matter if it’s $5 or $50 - it has to work for your lifestyle. Your goal should be manageable. As you hit your numbers and finances allow, you can increase your amount over time. You’re building here. No one is expecting you to have everything pulled together from the word go. Keep progressing with your savings goal in mind.

Practical Steps for Building an Emergency Fund

Now that you know what an emergency fund is and how it can help, let’s go through some useful steps for creating one.

Budgeting Is the Name of the Game

• Examine your income, essential bills, and other expenses.

• Schedule due dates that coincide better with your paydays.

• Change your financial routine to free up funds.

Electronic Account Management

• Use electronic bill payments to track your due dates and amounts.

• Open an interest earning savings account that’s low maintenance. Read any fine print.

• Set up auto transfers from your chequing account or paycheque to a savings account.

Save What & Where You Can

• Put away any extra funds (if you can spare them) like birthday or holiday money, work bonuses, or tax refunds.

• Cancel or pause services you don’t regularly use.

• If you return an item to a store, put the refunded money into your emergency savings account.

Get Ahead of the “What If?”

If you’re making plans to create an emergency fund or starting one right away, remember that this is a process. It takes time, but you’re able to do the work. So, use these tips to help make it a positive experience.