Having a dedicated emergency fund provides you with financial security and flexibility to handle whatever life throws your way, including:

• Loss of Job

• Accident or injury 

• Sickness, illness or disability 

• Major car repairs

• Home repairs

• Major appliance repairs or replacement

• A global pandemic (ie. COVID-19)

Not only is an emergency fund the key to creating financial security, but it also ensures you avoid the cycle of debt. Think about it - if an emergency popped up and you didn’t have any savings how would you take care of that emergency? Most likely by using your credit card, line of credit or re-mortgaging your house. All ways to get further into DEBT! And we can’t have that.

Here are 4 Steps to Build Your Emergency Fund:

1. Calculate Your Emergency Amount

My personal rule of thumb is 6 to 12 months of your monthly income (because you never know what type of emergency can hit). Set a target date for when you want this achieved and calculate how much you would need to save each month to get there.

2. Open a Separate Savings Account
Your emergency fund must be saved in a separate, dedicated account. The money is meant to go in and ONLY come out in an emergency. When you co-mingle your emergency fund with money in other savings accounts, you run the risk of seeing a ‘sexy balance’ and believing you have the money for that vacation, those new pair of shoes and that fall coat. And before you know it, you have depleted the account with little to nothing left when an emergency hits.

Use an account that is easily accessible and have your money invested in more ‘liquid’ investments that are easy to sell. You also don't want to pay taxes when it's time to use the money, so make sure to take advantage of tax-exempt accounts like a Tax-Free Savings Account (Canada only).

3. Set Up an Automatic Savings Plan
You should never leave building your emergency fund to chance. Set up an automatic savings plan so that your money is automatically transferred into your emergency fund every month. This ensures the money is saved and not spent.

4. Funding It Faster
In addition to your monthly contribution, make a commitment to put any extra funds you receive into your emergency account (ie. bonus, tax refund, gifts, etc.). Also, take a look at your budget and see if there are any expenses that you can reduce or eliminate. Instead of spending this money, start saving it towards your emergency fund. If a recurring expense is about to end (ie. car loan payment), put this towards your emergency fund when it ends. And if you really want to super fund it, find ways to increase your income in the short term until you have reached your target.