How to plan for financial emergencies.

Written by:

Kat Eschner

TVO Today

January 24, 2024

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📖 Read an excerpt of quotes here.

No matter how well you plan, crises happen. It’s important to be as prepared as possible to handle them, especially when it comes to money. That’s why Easy Money is asking the experts how to start planning for a costly emergency, regardless of your personal situation. [...]

How to save up an emergency fund

Having some of your own money stashed away for an emergency is the gold standard when it comes to financial preparedness. Conventional wisdom says you should try to save up three to six months of living expenses in a fund earmarked for emergencies. That might seem like a big number — but you can take steps to cut it down to size.

One of the best ways to start is to budget, says Sylvestre-Williams. Budgeting lets you know how much money you actually have to spend, she says, and gives you a good sense of how much is going to essentials like rent, mortgage, and food.

“I encourage people to figure out what is the minimum price tag to your life,” says Cindy Marques, a Certified Financial Planner and director at Open Access Limited, a group-retirement planning company. “I think it makes it a lot easier when people see a reduced number as opposed to just three to six months of their entire income.”

Once you know how much you could reasonable pare back in a crisis, you can set a sustainable savings target for your emergency fund. Then, start setting that money aside in a special account that you don’t access for other reasons. All three experts interviewed agree that a high-interest savings account is a good option. They caution that you want to make sure the money is quickly available if needed — in other words, don’t invest it.

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Marques suggests treating emergency savings like an essential. After all, she says, a financial emergency is bound to happen sooner or later. That means an emergency fund isn’t just a “nice to have,” she says. She recommends setting up an automatic withdrawal to your emergency account that lines up with your paycheque so that your emergency fund becomes an “extra deduction,” almost like employment insurance.

“If you treat your future like a mandatory bill that needs to be paid,” she says, “you can approach it a little bit differently.”