Setting up an emergency fund

From Financial Consumer Agency of Canada

The progression of various savings amounts
Figure 1: Text version
Amount of savings per week Total amount of savings per year
$20 $1,040
$15 $780
$10 $520
$5 $260

The savings amounts in this example are for illustration purposes only. They don’t include the interest that you may earn or take into account any tax implications.

  • at $5 a week, you’ll have $260 after a year
  • at $10 a week, you’ll have $520 after a year
  • at $15 a week, you’ll have $780 after a year
  • at $20 a week, you’ll have $1,040 after a year

Use the Budget Calculator to work emergency savings into your budget.

Make it a habit

Incorporate savings in your daily habits.

Here are a few tips:

  • drop any loose change into a container every time you get home
  • create a savings reminder on your smart phone or computer
  • circle your savings dates in advance on a calendar
  • put sticky notes in your wallet or on your mirror or refrigerator

Automate your savings

Choose a savings amount, date and frequency and then set up an automatic transfer from your regular account to your savings account.

Tip: set up your automatic transfer on the days you get paid so that the amount saved is transferred as soon as your paycheque is deposited into your account.

Eliminate an expense and save the amount

Eliminate some expenses and add these amounts to your emergency fund. Your current budget won’t be affected and your fund will grow faster.

To determine the expenses that you can eliminate, identify the difference between your needs and wants.

  • Need: a necessity, an obligation, something essential
  • Want: a desire, a wish, something non-essential

To eliminate an unnecessary expense:

  • bring your lunch to work instead of buying it
  • make your coffee at home and bring it to work
  • use public transit instead of your car
  • eliminate one non-essential food choice from your grocery list
  • use discount coupons, cashback offers and take advantage of specials

Depending on your current habits, you could save a lot of money every day!

Try My Expenses Calculator to learn how small purchases can add up over time.

Learn how to make a budget and eliminate expenses.

Review your goals

Review your financial goals on a regular basis. Your family, personal or work situation may change, and this may affect your budget.

Even minor changes can have an impact on the time you’ll need to reach your emergency savings goal.

These changes might include:

  • a new child
  • a new house
  • an increase in your property taxes
  • an increase in electricity costs

When these events occur, modify your budget accordingly so that your emergency fund remains a priority.

Increase your emergency fund

Take advantage of every opportunity that can help you increase your emergency fund. Deposit any additional amount into your savings account whenever possible.

For example, if you:

  • get a tax refund
  • get a pay raise
  • sell something (for example, vehicle, jewelry, furniture)
  • get money as a gift
  • get a performance bonus at work

When you finish paying off a loan (for example, a car loan, a student loan or financing from a store), it’s a great opportunity to increase your emergency fund. Take the money you were putting towards your monthly payments and deposit them into your savings account instead.

These payments are already included in your budget, and this is a way to put the newly available money to good use.

Advice to help you use an emergency fund

Before using all or part of your emergency fund, determine whether you’re really experiencing an emergency or if the expense is something that can be put off until you’ve had the opportunity to save.

If you’re not sure, go back to your list of needs and wants. An emergency is a major and sudden need that’s not part of your current budget and that’s unplanned.

When it’s truly an emergency, don’t hesitate to use your emergency fund. It’s much better than costly options such as payday loans or credit card cash advances. The purpose of an emergency fund is to avoid resorting to these expensive options.

On the other hand, if you determine that you don’t have a major need, don’t touch your emergency fund. If you can use a credit card and pay the balance in full by the end of the month, this might be a good option. If you don’t think that you'd be able to pay it back in full, then hold off on that expense until you’ve saved enough.

While your emergency fund should be easy to access, it’s very important not to let yourself be tempted by this money and to leave it intact for a real emergency.

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