Major expenses have a way of happening when you least expect it. Home repairs, a sudden illness, or job loss are just some of the events that could arise, leaving you in need for cash immediately.

Enter the emergency cash fund or “rainy day” fund.

It’s important that you have cash available to dip into if something is to happen, so you are not left taking directly from your retirement savings or worse yet, taking on high interest debt like a credit card.

How much do I save?

This will vary for each individual, but I do believe somewhere in the neighborhood of 3-6 months worth of expenses is a good place to be.

  1. Add up your fixed monthly expenses — that means, the expenses that happen every month, no matter what, such as rent, mortgage payments, property taxes, and insurance.
  2. Add up your variable expenses — that means, the expenses that vary month to month but are necessary to live, such as groceries, utilities, clothing, and transportation.
  3. Add these two expenses together to arrive at your total monthly expenses. From then on, its up to you to decide how many months of expense to budget for. The total amount should make you feel comfortable and confident in your ability to manage unexpected expenses.

Don’t include discretionary expenses like restaurant meals, vacations, and partying. You most likely, or shouldn’t at least, be indulging in times of emergency.

Take me for example. I have six-months worth of expenses in my account.

Although it may look daunting, starting a prudent emergency fund can be a painless experience with the right plan and mindset.

How Can I Start Saving Now?
  1. **Keep your goals manageable** — start small to ensure that you can stay the course.
  2. **Make it automatic** — redirect some income from each paycheque. You could also include any unexpected income, like a bonus or tax refund, to build your fund faster.
  3. **Keep it separate** — resist the temptation to dip into your fund until it's absolutely necessary! All money being deposited should be held in a separate account from your daily spending account
  4. **Keep it stable, liquid and convenient** — this money is for emergencies not investing, Depositing your funds in a High Interest Savings account will best ensure that they are available at a moment’s notice.

Remember! Creating a sufficient emergency fund will take time.

Once, you’ve reached your goal, reward yourself. Rewards are a great way to motivate yourself — a dinner out, or new piece of clothing, can be all you need to get excited about saving!

Saving for the future doesn’t end with just an emergency fund — invest in your RRSP, or TFSA next. Set your next goal, and reward yourself along the way.

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