What is an Emergency Fund and How to Build One

If there’s one thing you can count on, it’s that life can be unpredictable. Sure, your daily routine might not change much—but you never know when the car in front of you will slam on their brakes and cause a fender bender. You also can’t schedule the moment your air conditioner stops working, or when a heavy rain causes your sump pump to fail (and your basement to flood).

Plus what happens if you suddenly lose your job, or you need to take time off due to sickness or a family emergency? Can you afford to take time off without putting your personal finances in jeopardy? Will you still be able to pay all of your bills when the unexpected happens? Would you have to get a holiday loan or something?

There are a million little things that might pop up from one day to the next—and more often than not, that means a million little (or not so little) expenses. When an emergency comes up and you need access to cash fast, having an emergency fund makes a huge difference. It’s the peace of mind to know that you can handle last-minute expenses without going into debt.

But the problem is that we don’t always think about creating an emergency fund. After all, it’s much easier to plan for the future when you have a specific goal in mind, like a new car or your first home. With an emergency fund, you won’t necessarily have a clear end goal in mind. It’s all about stacking your cards against the millions of little “what if” and “just in case” surprises that pop up.

If you don’t have an emergency fund set up yet, you’re not alone. Only a quarter of Canadians have emergency funds set aside. And in those aged 18–34, as many as 35 percent have zero savings, let alone an emergency fund (yikes). In fact, most make it a new year's resolution to make good financial choices but . . . yeah . . . sometimes you can get by with a short term loan but best to have other alternatives.

In the sections below, we’ll go over what an emergency fund is and show you some real, actionable changes you can make in your personal finances to free up extra cash for your own emergency fund. Don’t let life’s unpredictability win—we’ll help you stack your deck against any unforeseen expense that comes your way! You can always get an e transfer payday loan but a dedicated emergency fund is better.

What the heck is an emergency fund?

An emergency fund is a sum of money that you set aside purely for—yep, you guessed it—emergencies. Using the money that you set aside into this fund is not something that will be part of your regular routine: in fact, you might not even touch it for many months or years. It’s designed as a safety net to sit, wait, and grow in the background.

How much should you have in your emergency fund? There’s no easy answer for this: financial experts all have different recommendations, and the amount that you will need to set aside will depend largely on your personal financial situation (like how much you pay for basic bills each month, your rent or mortgage, your car payment, etc.).

Most finance professionals recommend that you start with a goal of setting aside $1,000 in your emergency savings fund and build from there. The best case scenario is that your emergency fund will eventually grow to cover anywhere from three to six months of daily expenses to cover the big emergencies, such as changes in your income, car repairs, time off due to sickness, immediate home repairs, and more.

But how do you get from living paycheque to paycheque to saving hundreds (or thousands) of dollars in an emergency fund? It’s easier than you might think. See below for tips on how to get one step closer toward building an emergency fund—and all of the freedom that comes with it.

1. Re-evaluate your spending

Does the thought of setting up an emergency fund make you feel as though you need to pull money out of thin air? It doesn’t have to. Even when you’re strapped for cash, there are plenty of opportunities to re-evaluate your spending and find hidden ways to save.

This is all about refocusing the way that you look at spending money and asking yourself whether you really need something (and if it’s truly adding value to your life). If you can cut back on your spending in a few categories, you can not only boost your budgeting power, but you can also divert that money towards a more worthwhile cause—your emergency fund. Here are some ideas to get you started:

• Cut back on your streaming subscriptions and more.
  Do you really need to have Netflix, Hulu, HBO, and Amazon Prime? Probably not! Also buy budget friendly gifts for your Mom for a while. We're sure she won't mind. Also try to get rid of any debt as well. Look into debt consolidation.
  
  
• Shop around for better car insurance
  You might be missing out on a lower rate with another insurance company. If you are looking for insurance for a teen driver in your home, the savings may be greater. Take that difference and put it in your emergency fund.
  
  
• Adjust your mobile plan
  Are you using all of the data that you’re paying for? Can you get a better monthly payment by switching to a different plan?
  
  
• Eat at home instead of dining out
  This is an easy one to spend money on—and it’s also an easy one to control. If you’re spending $100 at restaurants each week, commit to eating at home for one week (and send that money to your emergency fund instead).
  
  
• Get creative with your utilities
  Are your heating, cooling, and electricity bills making you feel stressed about your ability to save? Get creative and cut back on your spending by opening windows instead of running the air conditioner, layering up instead of adjusting the thermostat, and turning lights off or unplugging appliances when they aren’t in use.

2. Pay yourself first

One of the best ways to make saving for emergencies into a successful practice is by reframing how you think about saving. Putting money aside isn’t about taking money away from you—it’s about giving money to yourself, and making an investment in your financial security. Get into the habit of paying yourself first when your paycheque comes in by making a deposit into your emergency fund.

Be intentional about it. Choose a certain amount that you will put away each week and stick to it, no matter what. Transfer it right away out of your checking account (or, if you can swing it, even before it hits your checking) so that you don’t even have a chance to miss that money. You will find it much easier to adjust the rest of your spending for the week, and it also eliminates the possibility that you will find another use for that money.

If you’re worried about forgetting to set money aside (or if you don’t trust yourself to make that transfer), you can always automate your savings. Most banks will have automatic transfer options from one account to another, making it possible to send money to your emergency fund without ever lifting a finger.

Decide on a specific amount to transfer every week or every month, and you won’t ever have to worry about whether you are contributing to your emergency fund. It’s the perfect “set it and forget it” way to save money.

3. Save your change

While there are plenty of ways to spend less (Especially on special occasions like Halloween), you can’t avoid spending money altogether. Use that money wisely by taking the change from all of your purchases and sending it to your emergency fund! If you pay in cash, you can create a savings jar at home to store any leftover bills or coins. Once it’s full, take it to the bank and deposit it into your emergency savings.

If you tend to use your card more often than cash, there are still some great options for you. Check with your local bank to see if they have a program for rounding up purchases from your checking account and sending the change into a savings account.

You can also sign up for a service like Acorns, which does exactly that. Every time your card is swiped, Acorns will round up to the next full dollar amount and set the difference aside for you. The cool thing about Acorns is that they will also invest your spare change, so it has the opportunity to grow while you store it away.

4. Sell unused items for emergency fund cash

Let’s face it: we all have a collection of things that are sitting around our house in storage, things that haven’t been used in months (or maybe even years). If you haven’t actually worn that sweater since 2017, or if the serving tray set that your great aunt gave you is still sitting in the box, it’s probably time to let go.

Financial experts recommend rounding up all of your unused items and turning them into emergency fund contributions by selling them. If you live in a high-traffic neighborhood (and don’t mind dedicating an afternoon to the cause), you can set up a weekend garage sale. Or, if you prefer to handle everything online, you can use Facebook Buy & Sell Groups, Craigslist or even apps like Letgo.

You can even take it one step further and create an Ebay account to sell your things in an online auction (which is probably your best bet for higher value or collector’s items). You may find that you’re sitting on hundreds of dollars to start your emergency fund—trust us, those $5 and $10 sales will start to add up fast!

5. Get a side hustle

Whether it’s a few hours in the evening or over the weekend, we all have extra time outside of our regular 9 to 5. The question is how we are using it—and whether that time could be better spent making money. Getting a side hustle is a great way to earn additional income, and you can use that additional income to contribute to your emergency fund.

You can pick up a part-time job on the weekends at a local restaurant or a retailer to earn some extra cash. If you’re crafty, you can open up an Etsy shop or post your creations on a local marketplace (like on Nextdoor or Facebook) for people to buy. And babysitting or dog-sitting is always going to be an option in your local area, especially if there are a ton of families around.

Admittedly, sometimes picking up a side hustle can be challenging when it comes to managing your time with your full-time gig. If you don’t mind working in a virtual environment, the good news is that there are tons of ways that you can take your skills and apply them to a work-from-home job.

If you are a web developer, designer, digital marketer, social media strategist, editor or writer, there are tons of online jobs on Fiverr and Upwork that you can pick up in your spare time. And you might be surprised at your ability to fill the needs of a virtual assistant, helping clients with things like drafting and sending emails or managing an appointment calendar.

Instead of taking a few hours to relax on the couch and watch TV after work, take that time and dedicate it to your side hustle. Sure, you may be sacrificing a few episodes of your latest binge-worthy show—but the payoff in creating an emergency fund will be well worth it.

Before you begin: Emergency fund tips and tricks

Having an emergency fund is not only a key part of preparing yourself for all of life’s unpredictable events—it’s also part of smart personal financial management. As you start preparing your own emergency fund, keep these tips and tricks in mind:

• Your emergency fund should be easy to access, such as in a separate checking account or a savings account. The last thing that you want when an emergency pops up is to have to wait three to five business days to actually get to your funds!
  
  
• But it should also be far enough away from your daily checking and savings account where you aren’t looking at it all the time or tempted to withdraw from it for a non-emergency. You might want to consider starting an account with a new bank or credit union just for your emergency fund. Don't get an emergency fund credit card. Emergency fund is just for savings.
  
  
• Make sure that you are only withdrawing funds for real emergencies (sadly, getting a new sound system for your car or that designer dress that just went on sale are not examples of emergencies). An event is emergency-fund worthy if it is:
  • Something that you could not have prepared for otherwise
  • A time-sensitive need that needs to be urgently resolved
  • An expense that is both un-avoidable and necessary

No matter how you decide to do it, make this your year to start an emergency fund. Don’t forget to be patient with yourself: saving can take time. And everyone has their own unique financial obligations and concerns, so it can also take some trial and error to find the right strategies that work for you. With these strategies and tips in your back pocket, you will be well-prepared to handle any financial complications that life throws at you!