Why You Need An Emergency Fund
Unexpected expenses are a real strain on the budget. With 47% of Canadians living pay cheque to pay cheque, it’s easy to see how an unexpected expense can have a major impact on our financial situation.
While unexpected expenses are hard, they are actually somewhat normal. If you own a home, you know that there are a number of things that can go wrong. Your hot water tank could leak, your beloved washing machine might stop working, or you could be in need of a new roof.
And if you own a used car, well there’s always some surprise repair just waiting for you.
And let’s not forget the threat of unemployment, which looms over many of us that are reliant on an employer for job security.
How Much Do We Need?
A good emergency fund should include enough money to cover home and car upkeep, as well as additional money in the effect of income disruption.
Setting a number can be hard, but here’s a great calculator that will get you started.
Plan For It
At one point or another, we will need money for an unexpected expense. It’s actually expected. So let’s plan for it.
If you don’t have an emergency plan started, you need to plan out how much you can afford to tuck away.
Having your savings put away automatically with each pay cheque is an excellent way to make sure that you are building up your emergency fund.
Read our blog post on a high interest savings account that allows you to automatically save without any monthly fees.
When Saving Is Impossible
Sometimes money is so tight that it’s impossible to put money aside. In this case, we’d suggest using our resources on BillCrush.ca to find money within your existing budget by lowering your monthly bills.
You can also utilize a “round-up” feature such as the one on the KOHO pre-paid credit card to automatically round-up your purchases and put that extra money aside. Because the amounts are so small, you won’t miss it but overtime it will add up.
If you have no emergency fund right now and you are employed and own your own home, you may want to consider getting a home line of credit to use the event of an emergency. Interest rates are much lower on a line of credit than on a credit card and a much smarter way to bridge the gap in a financial crisis.
If you were to become unemployed, it could be very difficult to secure approval on a line of credit, so take the steps now while your finances look better.