By Author: Olivia Reitsma
Date: March 25, 2023
Emergency funds are not the funnest thing to talk about in finances, nor in life, but unfortunately they are needed. Emergency funds are crucial to have in case you have, well, you guessed it, an emergency! Everyone can have one and they are simple to set up.
What's the point of an Emergency Fund?
Emergency funds are to allow you to handle the critical situation without fear of going into debt or being worried about your finances while in a crisis. It also can provide a peace-of-mind for the unknown and ultimately, it allows you to have more financial control.
What is an Emergency Fund?
An emergency fund is for emergencies! This does not include not having enough money to go the Taylor Swift Era’s Tour, or being short a few dollars for a Venti Iced Caramel Macchiato. Although those are all important on a different level, emergencies are when you suddenly lose your job, or a close relative is injured and you need to take an extended amount of time off work, or maybe your car breaks down and you need to get home. These are all considered emergencies.
How to Create one and what is in it?
Emergency funds generally consist of at least 3-6 months of expenses. 3 Months being the minimum as suggested by Goldman (2021) who is a journalist for Personal Finances that writes for Wealthsimple.. The fund should cover all of the necessities, meaning rent, utilities, food, insurance, transportation etc…. Anything that is a necessity for you to continue living. And this amount could be different for everyone.
After calculating all of your necessary expenses, storing your fund is another question. Because if the fund is needed at any time without notice, generally a separate savings account would be ideal as it is easy to access immediately. Another account that would be a great option is a high-interest savings account, these accounts “offer interest rates… as high as 2%” (Goldman, 2021)" while still being able to have access to them 24/7. Emergency funds need to be in a place where they can be accessed at any time in case of the emergency!
How to start it?
You don't need a ton of money to start an emergency fund, you can start by taking off 10% from your paycheck and putting it into the designated account, and slowly but eventually it will build up. You don't need to use 10% though, $50 or $30 or any amount that you can fit in your budget will do. And then overtime you will eventually have enough for your emergency fund.
Conclusion
Emergency funds are great to have if anything goes wrong, then you are able to take care of the situation and not feel the need to sacrifice your health, next pay cheque, or vacation fund. It’s always important to be prepared for any financial emergency.
Ressources:
Budget Planner - Budget Planner
References:
Emergency Funds: What, Why & How Much | Wealthsimple. (n.d.). https://www.wealthsimple.com/en-ca/learn/emergency-funds#what_s_an_emergency_fund
Financial Consumer Agency of Canada. (2022, September 21). Setting up an emergency fund. Canada.ca.https://www.canada.ca/en/financial-consumer-agency/services/savings-investments/setting-up-emergency-funds.html