Let's Talk: Emergency Funds

Its Purpose 

Emergency fund, funds for a rainy day, cash cushion, reserve funds are all synonyms. They may go by many different names but essentially, they all serve the same purpose. The purpose is to enable you to continue living for a period of time when you lose your primary source of income, typically when you lose your job. It's important to put some savings away for this fund in a savings account at your bank. If you did not start an emergency fund and lost your job, you will immediately run a deficit. Having the emergency fund will create a buffer for a period of time until you can find another job to replace your lost income. It will provide you with financial security during a time period of stress and financial hardship.

How to Start

When making your budget, be sure to allocate an appropriate amount to your emergency savings with after-tax income. Use this Calculator to help you! Here are some things to consider:

• How Long? - The general rule is to save for 6 months but depending on your personal needs, you can adjust for a longer period of time.
• How Much? - Consider adding up all your necessary expenses for 1 month then multiply it by at least 6 to cover your expenses.
• Needs, Not Wants - You should save up enough to cover your necessary expenses. You should carefully look at your budget to find which expenses are essential to survive vs. which expenses are for enjoyment.
• Running Out - Also consider options on what to do after your emergency fund runs out. 

During this time, it's understandable that you may want to take a couple of days off to emotionally recover from your job loss. However, you should start job searching to replace your income as well. Begin looking for available support like Employment Insurance and other social assistance programs you are entitled to.

Emergency funds are generally overlooked but they can become very valuable in an unforeseen event like this year's COVID-19. Millions were suddenly out of a job but still had expenses to pay. The government implemented social assistance programs but that won't always be the case. Even then, it's not meant to fully cover your regular expenses. Your regular expenses may exceed the benefit that you receive from the government and you might just end up in a pickle!