I’m getting ready for a big move to chase my dream of becoming a music and culture journalist. I know it’s a bold choice in these challenging economic times, especially since the move will take me to a city that’s just as expensive in Vancouver. As the cost of living continues to soar, most Canadians are spending more than they’re making – and I know I’ll need all the funds I can get and then some. But I plan to see it through so I’m getting my finances ready in every way I can.
My mum suggested I make an emergency fund to cover unexpected expenses. Between us, I think she mentioned it so that I don’t wind up back at her house the first time I hit a roadblock. But I agree, it’s a great idea because I still don’t have a full-time job, journalism doesn’t pay much and my savings won’t last forever. So I’m definitely going to need a little bit tucked away just in case. Here’s how I’m working on growing it.
But wait, what exactly IS an emergency fund?
An emergency fund is a savings fund set aside to meet sudden and urgent financial needs like unexpected car repairs, rent increases, a job loss or a large health-related bill – basically any expense you didn’t foresee. Ideally, an emergency fund should cover three months of your regular living expenses, but I know a lot of Canadians are finding it tough to save anything at all.
Your emergency fund should be accessible – but not too accessible. Ideally, you want it to grow without interference.
For me, I’ll likely have furniture expenses when I move, and I’ll probably need new pots, pans, and utensils too. Eating out and catching some shows will be tempting, but as a twentysomething, I know I need to balance living my best life with smart budgeting. If I don’t, this new chapter might be short-lived. That’s where Vancity’s Fair and Fast Loan™ comes in—it’s a smarter alternative to payday lenders, offering eligibility based on your income rather than your credit score. This can be a real lifesaver if you need cash quickly and are worried about your credit. And, on top of that, even a little bit of savings can go a long way. For example, saving $50 a month for 10 months adds up to $500, which can help you handle unexpected expenses and stay ahead of the curve, especially since 1 in 4 Canadians are unable to cover such costs.
How to start saving for a rainy day
Right before moving, I got into the nitty gritty of my budget. I’ve been living with my parents, so that has saved me some money, but I knew I could still cut back on non-essential expenses. I cut out entertainment subscriptions, started cooking more and even sold some clothes I knew I’d never wear. I also got a large tax refund, which I was tempted to spend on upgrading my seven-year-old Macbook, but I decided to forego that in favour of starting my emergency fund.
Here are the steps I recommend following to get yours started too:
Step 1: Know your budget.
First, I recommend reviewing your budget, including all of your regular transactions and miscellaneous expenses. You need to understand how much money you’re bringing in, and how much is going out. If there’s any left over, you already have the beginnings of an emergency fund. Figure out how much you can realistically put away each week or month, or find ways to get creative with your savings, such as putting aside the change you get back from every purchase or saving one dollar per day.
Two simple options for your savings account that will help it to grow: a high-interest savings account (HISA) or a Guaranteed Investment Certificate (GIC).
Step 2: Reduce your expenses.
If your budget is tight, you’ll need to get extra creative to find funds you can save. Go through your budget with a fine-tooth comb and identify any expenses you can reduce, any subscriptions you can cancel or any upcoming purchases you can forgo. If you were previously paying for monthly subscriptions, for example, you can funnel those funds into your savings instead.
Step 3: Look for money in unexpected places.
Sometimes you can find money you even didn’t realize you had. For example, did you receive an income tax or GST refund this year? Did you get some gift money for your birthday? Or maybe you’ve got some items you’ve been meaning to get rid of that you could sell online. Use these funds to start your emergency stash. You can also check the CRA website to see if there are any uncashed CRA cheques with your name on them, or even unclaimed bank balances through the Bank of Canada – you never know! My tax refund this year made a great addition to my fund and knowing I had that cushion helps me breathe easier.
Step 4: Make your emergency fund a budget item.
Once you have a good sense of your cash flow, you can start including your emergency fund right in your budget. How much you save will depend on your financial situation, but most of all, it must be realistic or else you might be tempted to dip into it. Remember, a little goes a long way, so it’s totally fine if you’re only able to save $15 a week. To make it a habit, you can automate your savings so that you don’t even have to think about it.
Decide where to keep your emergency savings
Your emergency fund should be accessible – but not too accessible. Ideally, you want it to grow without interference. I, for one, am periodically tempted to dip into my fund to buy concert tickets, which is why I decided to put my emergency fund into a separate account – one that’s harder for me to access.
Here are two simple options for your savings account that will help it to grow: a high-interest savings account (HISA) or a Guaranteed Investment Certificate (GIC).
High interest savings accounts provide higher than average interest rates on your savings, which helps them grow faster. Vancity has some great options including the Jumpstart High Interest Savings Account that comes with a high interest rate and no monthly fee or minimum balance. If you want to lock away your savings for a longer term, GICs are a great way to invest with low risk and guaranteed returns. Vancity offers a wide variety of GICs you can match up to your savings needs.
Keep the fund (and fun) going
The thing about emergency funds is that they’re there to help when emergencies happen. And they will happen. But you’ll need to define for yourself what constitutes an emergency. Set rules for when you can access your fund – and stick to them! (And if you do pull out some money, always be sure to pay it back.)
Right now, I’m in a comfortable place with my emergency fund. I’ve saved more than two months of expenses and I’m finally ready to move! When an emergency pops up like a large bill or an expensive repair (Lord knows, this Macbook is due to die soon), I know I’ll be covered.
