Why emergency funds are important

An emergency fund is money you set aside to pay for unexpected expenses. You'll most likely have to deal with an emergency resulting from an unexpected situation or a drop in income at some point in your lifetime.

These surprises usually don’t give you time to adjust your budget.

Some examples include:

car breakdown

urgent visit to the veterinarian

job loss

health problems that prevent you from working

Unexpected expenses should not be confused with occasional expenses such as back to school supplies, winter tires or holiday expenses. Occasional expenses should already be planned in your budget.

Setting up an emergency fund makes it possible to:

handle an unexpected expense without getting into debt

avoid high-cost loans (for example, a payday loan or credit card cash advance)

have financial control

have peace of mind

Tips to set up an emergency fund



Use these tips to set up an emergency fund.

Open a savings account

It’s important that you choose the right type of account to build your emergency fund. It should be easy to access your money quickly in case of an emergency.

Here’s what you should look for in a savings account:

the account should be separate from the account you use for day-to-day transactions

you pay no or low transaction fees

you can make withdrawals without penalty

you earn interest on the money you save

Consult your financial institution to make sure the account you have in mind will allow you to meet your goal to build an emergency fund.

Use the Account Comparison Tool to find the savings account that best suits your needs.

Start by saving a realistic amount

It can take months, or even years, to reach the desired amount for your emergency savings. Don’t panic, this is normal!

It’s better to start with a small amount so that you don’t become discouraged.

Start by figuring out what you can put aside every week. Whether it’s $50, $20, $5 or some small change, the important thing is to start right now.

In general, it’s recommended that you save the equivalent of 3 to 6 months of your regular expenses. You can also aim to save 3 to 6 months of income. Both methods are effective, so choose whichever one works for you.

These amounts can sometimes seem out of reach. That is why you should save gradually.

Saving a small amount on a regular basis can make a big difference in the long term.

Figure 1: The progression of various savings amounts

