Setting up an emergency fund
Figure 1: Text version
|Amount of savings per week||Total amount of savings per year|
The savings amounts in this example are for illustration purposes only. They don’t include the interest 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
Make it a habit
Incorporate savings into your daily habits.
Try these 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 your calendar
- put sticky notes on your desk, mirror, or refrigerator to remind yourself to save
Automate your savings
Choose a savings amount, date and frequency to build your savings. Then, set up an automatic transfer from your regular account to your savings account.
You can set up your automatic transfer on the days you get paid. This way, the amount saved will be 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. This won’t affect your current budget and your fund will grow faster.
To determine the expenses 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 unnecessary expenses:
- 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.
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 may 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, you may get extra money if you:
- get a tax refund
- get a pay raise
- sell something (such as a vehicle, jewelry, furniture)
- get money as a gift
- get a bonus at work
When you finish paying off any type of loan, 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 in your budget. This is a great way to put the newly available money to good use.
Tips to help you use an emergency fund
Before using all or part of your emergency fund, determine if you’re really experiencing an emergency. Maybe the expense is something you can 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. The purpose of an emergency fund is to avoid having to use other expensive credit options.
While your emergency fund should be easy to access, don’t let yourself be tempted by this money. Leave it intact for a real emergency.
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