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The Great-West Life Assurance Company, London Life Insurance Company and The Canada Life Assurance Company have become one company – The Canada Life Assurance Company. Discover the new Canada Life

The Great-West Life Assurance Company, London Life Insurance Company and The Canada Life Assurance Company have become one company – The Canada Life Assurance Company. Discover the new Canada Life

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Freedom 55 Financial is a division of The Canada Life Assurance Company and the information you requested can be found here.

What is an emergency fund and how much should I have?

Key takeaways

  • Everyone should have savings set aside that you can easily access to cover unexpected costs, commonly called an “emergency fund.”
  • Your emergency should cover 3 to 6 months of your expenses.
  • There are 4 steps to saving the right amount: setting clear goals, having a dedicated savings account, saving regularly and reviewing your savings often.

What’s an emergency fund?

It’s money you set aside to pay for expenses or financial events you didn’t see coming such as:

An emergency fund shouldn’t be used for occasional expenses that you can see coming such as a vacation, winter tires or school supplies. Those items should already be in your budget and saved for in another way.

An emergency or “rainy day” fund is something 26% of Canadians don’t haveOpens a new website in a new window, but there are many reasons why it’s smart to save for the unexpected.

Advantages of having an emergency fund

It provides instant access to cash

In an emergency, you won’t have to scramble to find ways to pay for things..

It limits the need to borrow money

When the unexpected happens, you won’t have to increase your credit card debt, take out a loan, or add to your mortgage to pay for it. That can help your long-term ability to manage debt.

It can increase financial independence

An emergency fund can help you keep your head above water financially without relying on outside sources and remain in control of your decision making and spending.

It can help you save money

Setting cash aside for an emergency fund allows you to save more money by not having to pay back high-interest debt.

It can help you keep other financial goals on track

Having an emergency fund can mean you may not need to dip into your registered retirement savings plan (RRSP) or registered retirement income fund (RRIF) which can help keep your retirement savings and income goals on track.

It can provide a feeling of financial security

Wouldn’t it be wonderful to know you don’t have to stress about how to pay for something in an emergency?

How much you should save in your emergency fund

Here are 4 steps to saving the right amount:

Set achievable goals

How much you’ll need in your emergency fund will vary depending on your personal situation. Ideally, your emergency fund should cover at least 3 to 6 months of your regular expenses, or 3 to 6 months of income, whatever works best for you. More is always better.

To determine this amount, simply add up your regular monthly expenses and multiply them by between 3 to 6 to arrive at your emergency fund goal.

Then, figure out how you’re going to build your emergency fund. Can you cut costs somewhere or give up purchases such as coffee or lunch out to save more money each month? Start small with $10 or $20 a week or whatever you can afford.

Open a dedicated account

Place your emergency fund savings in a dedicated account so you’re not tempted by spend it. To maximize your interest, think about opening a high interest savings account.

Make regular contributions

There are lots of ways to add to your emergency fund on a regular basis.

  • Automatically transfer funds from your regular chequing or savings account to your emergency fund account. If you do this on the days you get paid, you won’t even have a chance to miss the money.
  • Create a savings reminder on your phone or computer, circle dates on your calendar or stick notes on a mirror or your refrigerator.
  • Drop loose change into a jar or bowl and, as it fills up, put that money in your emergency fund.
  • Sell something valuable to build your emergency fund.
  • If you get windfall money from a gift, tax refund, pay raise or bonus from work, place some or all of that into your emergency fund.

Assess and adjust

Regularly review your financial goals and make changes when your situation changes:

  • Save more or less to your emergency fund as your income goes up or down.
  • Increase or decrease the amount you need in your emergency fund as your expenses rise or fall.
  • Adjust your emergency fund contributions to account for inflation.

What’s next?

Now that you understand why you need an emergency fund, why not meet with an advisor to:

  • Look at ways you can find room in your budget to save for your emergency fund.
  • Open a high interest savings account for your emergency fund.
  • Set up an automatic transfer from your regular savings account to your emergency fund.

The information provided is general in nature and should not be relied upon as a substitute for advice in any specific situation. For specific situations, advice should be obtained from the appropriate legal, accounting, tax or other professional advisors.

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