What is an emergency fund?
- Money you set aside to use for unplanned events or costs.
- It is an important part of a good financial plan.
Why do you need it?
- It keeps you secure when in need.
- If you do not have an emergency fund, you could:
An emergency fund helps you avoid loans. You lose more money paying for debt.An emergency fund gives you peace of mind. You don’t worry when something unplanned happens.
- reach the limit of your credit card. This is a bigger expense due to high interests (if you cannot pay it in full when it becomes due).
- get money from your retirement fund or your child’s college fund.
How much do you need to save?
Save three to six months of your salary. Or:
- three to six months of your living expenses (use the Emergency Fund calculator from Practical Money Skills).
- the amount can depend per person or family. But it is safe to cover three months of your household expenses.
What counts as an emergency?
- Losing a job
- Medical emergencies (Examples: sickness, disease or accident)
- Necessary house repairs (Examples: leaking roof or plumbing)
- Car repairs
- Expenses when someone dies (Examples: travel, burial or hospital expense for the death of a relative)
How to start an emergency fund
- Save small amounts every month.
- A fast way to start is to save a lump sum amount like a tax refund or gift.
- Other ways to start:
- Save money from a bonus, or from a sale of things you own (examples: a second car you don’t use, equipment or furniture)
- Save from cutting costs. For example, not getting cable TV or a landline (if you already have a cellular phone)
- Save half of your vacation budget by choosing a less expensive holiday.
Where should you keep it?
- Keep a separate account at a bank or credit union.
Open a high-interest savings account or a Tax-Free Savings Account (TFSA). This may not have a high interest, but it will keep your fund secure and easy to take when needed.
- It must not be too easy to take out from but “liquid” enough. This means money can be easily taken out when you need it.
- Avoid risky investments.
Keep saving! Every dollar counts
The Golden Rule of saving is to “pay yourself first”.
- Save a small amount every pay day. Make it a habit. It will amount to a lot before you know it.
- Set automatic, regular transfers from your payroll account to your emergency fund account.
- Put back whatever you take from your emergency fund. You never know when an emergency will come.
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Go to the Government of Manitoba’s Financial Literacy Resource page to learn more.
Join SEED Winnipeg’s free Manage your Money Workshops. Also join the Saving Circle program.
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