Building your emergency savings fund

How to create a financial cushion to protect against rainy days 

Life throws us curveballs. So having some money set aside in case of an emergency is not only a good financial strategy, it will also help you sleep easier at night. Here are a few things to consider when setting up your rainy day fund.

No matter how careful you plan, life doesn’t always unfold the way you envisioned. At any time you could face illness, job loss, or simply have to replace the transmission in the family car. Right after discovering that imminent leak in your roof.

The unexpected can happen at any time, which is why a rainy day fund is an important part of your financial planning and budgeting process.

How much to save

Most financial experts recommend having at least three months' salary saved as a safety net. If you feel your job might be at risk or if you're self-employed, six months might be a better idea. If you have other savings you could draw on in addition to your emergency fund, then you can adjust how much you need to put away. You may have family who can lend you the money. Or if you own a home, you might consider setting up a Home Equity Line of Credit for emergency use only.

Where to keep it

Your emergency fund should be easily accessible, and kept separate from your day-to-day operating account, perhaps in a High Interest Savings Accounts or Tax-Free Savings Account (TFSA). As a rule of thumb, you should try to fund your emergency account while still maintaining your other savings plans such as RRSPs. Dipping into an RRSP early has tax implications, so you’ll want to manage those funds separately.

Start small and keep going

Depending on what you decide is your ideal buffer, make a commitment to squirrel something away either every pay period or in a lump sum at a particular time every month. It's okay to start small – the key is to begin. Treat it as a non-negotiable monthly "expense" and before long you'll have more than just emergency money saved – you'll have retirement money, vacation money, or even a down payment for a new home.

Automate plans for painless saving

A very easy way to manage your savings plan is to make it automatic. Set up a pre-authorized, automatic transfer into your savings account. Schedule it from each pay period or other time frame so you won't even have to think about it. Then when or if you need it, it will be there. At BlueShore, you can do this yourself within Online Banking or simply contact our Solution Centre and we’ll set it up.