Half of Canadians don’t have Emergency Savings – Which half are you in?
An emergency savings account is the essential component of every successful financial plan. The key to an emergency account is to start allocating a dollar amount every pay period. Many Canadians are lulled into thinking that a line of credit or a credit card is their emergency account – it is not! If you have an emergency, such as a job loss or a medical crisis, the last thing you need is more debt that would only add to your stress.
Set up your emergency account separately from your other savings.
The savings could still be within your Tax Free Savings Account (TFSA), but in a separate, low risk fund. Start by contributing a regular amount from every pay cheque – you can have it withdrawn directly from your account so that is automatic and simple. Increase the amount every time you receive a raise. Your goal is to build it so that it could cover 3 months of your net income. Use it only for emergencies or opportunities and replace as soon as possible if you do have to dip into the account.
Here is another tip: Deposit half of every tax refund, bonus or any other lump sum of money that you receive into your emergency savings and then have fun with the rest!
When you have an emergency account in place – you will never have to cash in RRSPs, put debt on your credit card or line of credit. You will be able to handle emergencies with less stress or be able to take advantage of opportunities knowing that you have a cushion to fall back on. You will be able to sleep at night.