Why you need an emergency fund, and how to save for one

Why is an emergency fund an essential part of your financial wellbeing? No matter who you are, life can sometimes throw a curveball when you least expect it. Job loss, major medical expenses, or a car repair, for example, are all things that can happen to anyone. If you are not prepared, you can quickly feel very overwhelmed. That’s where an emergency fund comes in. For Canadians looking to protect their financial health, building an emergency savings fund is critical. This is especially true if you have a mortgage to keep up with! An emergency fund acts as a safety net, giving you peace of mind when you need it. Here’s how you can start saving for one.

Why do you need an emergency fund?

Why exactly is it so important to have these savings? Your emergency fund is a financial cushion that is to be used strictly for unplanned expenses. You should not be using it for vacations, dinners out, or other nonessential spending. Having this fund ready ensures that if you find yourself needing extra money, you won’t need to rely on credit cards or other investment accounts to cover these costs. If you are a home owner, this is especially important. Your mortgage is likely your biggest financial commitment, which means missing payments can quickly impact your credit and long-term finances. With an emergency fund, you’ll have the confidence of knowing you can stay on top of your mortgage, even during tough times.

How much do you need?

A good goal to aim for is to keep between three and six months of expenses in your emergency fund. This should take into account all your regular bills such as your mortgage or rent, utilities, groceries, and any other common costs. You may feel intimidated at the prospect of saving this amount of money. However, remember your emergency fund doesn’t have to be built overnight. It’s something you grow steadily over time! If you’re self-employed or have more unpredictable income, you may want to save a higher amount, closer to six months or more. This offers you a bit of extra protection if the unexpected hits.

Where should you keep this money?

Your emergency fund should be easily accessible, of course. However, you don’t want to keep it in your chequing account where you might be tempted to spend it! Remember, this fund is not for everyday use. A high-interest savings account is a good option for many Canadians. It keeps your money separate from your daily chequing account, allows you to earn interest, and can be accessed when you have need for it. You should avoid putting these savings in investments that fluctuate with the market, or lock your money away for long periods. The goal with this specific find isn’t growth – it’s security!

How to start building your savings

Building your emergency fund is all about consistency. One of the best things you can do is make your fund contributions a part of your budget. This means you should treat your emergency fund like any other bill. Decide on an amount to contribute, and set it aside each month. Over time, those contributions will add up. An easy way to remember to make these contributions is to automate the process. You can set up an automatic transfer to your emergency savings account on a monthly basis, so you don’t forget to do this yourself. 

It’s also okay if you can’t afford to put away huge amounts of money at a time. You can start with $25 or $50 per paycheque. Over time, you can increase the amount. You might also come across tax refunds or bonuses at some point. Instead of spending these unexpected windfalls, consider moving them into your emergency fund to boost your savings.

An emergency fund may not be the most exciting goal. However, it’s one of the smartest financial moves you can make. It gives you the ability to take on unexpected challenges without needing to worry about your financial wellbeing. No matter how much you can contribute, the most important part is getting started. Over time, your emergency fund will grow into the safety net you need, helping you protect your financial future. As mortgage brokers, we understand the importance of stability when you are taking on a mortgage. Building an emergency fund is an essential step toward that stability! If you need any guidance getting started, you can reach out to us anytime. We’re here for you!

If you have any questions about your mortgage, give us a call at Centum Home Lenders! You can reach us at 506-854-6847, or get in touch with us here.