Do I really need an emergency fund?

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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?

  1. It keeps you secure when in need.
  2. If you do not have an emergency fund, you could:
    • 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.
  3. An emergency fund helps you avoid loans. You lose more money paying for debt.
  4. An emergency fund gives you peace of mind. You don’t worry when something unplanned happens.

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

  1. Save small amounts every month.
  2. A fast way to start is to save a lump sum amount like a tax refund or gift.
  3. 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?

  1. Keep a separate account at a bank or credit union.
    • 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.
  2. 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.

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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Community Resources

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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