If COVID-19 has taught us anything, it’s that you need to be prepared for anything — pandemics included.
Yet a 2019 Statistics Canada survey found that just two thirds of Canadians say they have three months’ worth of expenses saved up for emergencies.
Financial expert Jason Heath said the factors that influence how much you keep in an emergency fund include your income, your expenses, your family situation and your comfort level.
One rule of thumb is to keep three to six months’ worth of expenses in the fund, but Heath said there’s too much variability in people’s financial lives to make a one–size-fits-all rule.
The number of Canadians who say they have an emergency fund sufficient to cover three months’ worth of expenses.
Heath’s preferred emergency source is a line of credit — you can get a good rate on a home equity line of credit secured by your house, if you have one. That way more of your savings can be invested so they grow over time.
But this method is only recommended for people who use their emergency fund for true emergencies, Heath said.
Some people confuse emergencies with unexpected costs, said Heath, such as vet bills or extra dentist visits. The latter should be built into your budget, he said.
Money for unexpected costs can be kept in a regular savings account or in your Tax-Free Savings Account (TFSA). It should not be kept in your RRSP, invested in the markets or locked into an investment that can’t be quickly cashed in.
“When an emergency comes along … if it happens to coincide with a stock market downturn, that can be risky,” he said.
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