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Everything you need to know about building an emergency fund

An emergency fund is essential for dealing with life's uncertainties. Here are a few ways to build a financial cushion that meets your needs.

By Fonds de solidarité FTQ

According to the 2019 Canadian Financial Capability SurveyAttention, this link will open a new tab., 64 percent of Canadians have an emergency fund that would allow them to cover three months' worth of expenses. However, among those aged 55 and under, that figure drops to 54 percent.

Unfortunate surprises like a loss of employment, an illness, or major repairs to a vehicle or a home can happen at any time and take a financial toll. That's why it's so important to have an emergency fund. Here's everything you need to know to build a financial cushion that will meet your needs and help you through hard times.

Savings goal: Start an emergency fund

An emergency fund requires planning and a budget. Once you've paid off any bad debt, you can focus on setting money aside and developing good savings habits. If you have cash squirrelled away, you won't have to borrow money or go into debt if your income drops unexpectedly or if unforeseen expenses come up.

For instance, self-employed workers can use their emergency fund to stay afloat when work slows down. Property owners can dip into their savings to cover unplanned repairs. For parents, the money they save can get them through a rough patch and ensure their children's well-being.

During the COVID-19 pandemic, many people have also realized the importance of having an emergency fund to supplement their income while waiting to receive government assistance or for the economy to rebound.

If you don't end up using your financial cushion during your active life, all the better! It can go toward your retirement.

The three-to-six-months rule

The amount you should stow away in an emergency fund depends on your needs and expenses. However, as a general rule, you should have enough money to cover three to six months of living expenses, without income. As you begin to save, aim for at least one month's expenses. You can then steadily increase the amount until you reach your goal.

To help you accumulate the amount you need, avoid dipping into your savings. Remember that it's there for emergencies, not for occasional purchases! For example, if you want to buy a winter coat, a swimming pool, or holiday gifts, budget for these items instead of using your savings.

Four steps to saving an emergency fund

01Take stock and make a plan

The first step to building a proper emergency fund is to determine how much money you'll need. It's much easier to save when you have a clear goal. Start by taking stock of your expenses and income.

There are some important things to consider when assessing your financial needs. For example, if you lose your job, do you qualify for Employment Insurance (EI)? If not, your emergency fund will need to become your temporary source of income in case of job loss. Are you eligible for other benefits, like disability insurance? If so, your financial cushion can help you cover expenses while you wait to receive them.

You should also keep in mind that, if you're a homeowner, you're more likely to have unexpected expenses than if you're renting. Finally, if you don't have a mortgage or line of credit, and your credit card is your only form of credit, you will probably need to rely heavily on your savings in the event of an emergency. In short, it's important to consider all these factors and more when determining your financial needs.

02Budget

Once you've established the amount you need in your emergency fund, it's time to set a budget. That's right—a budget is key to making informed financial decisions. It should include all your expenses, income, and assets. Make sure to specify your financial goals. The Fonds has even created a free personalized budget tool to make your life easier. As you create your budget, treat your emergency fund savings as a monthly expense.

According to the 2019 Canadian Financial Capability SurveyAttention, this link will open a new tab., having a budget can be an effective first step for those who don't have emergency savings or who haven't gotten into the habit of saving. The survey found that 65 percent of Canadians with a budget manage to set aside an emergency fund, compared to just 39 percent of those without one.

03Start small

Based on your financial capacity, choose a realistic amount that you can set aside regularly, whether it's every week, every paycheque, or every month. When it comes to saving, no amount is too small! You can adjust it later if your income changes or if you're able to reduce other expenses—if you finish paying off a debt, for example.

04Automate your savings

Once you start your emergency fund, you can use automatic savings to help you reach your goal. This involves setting up automatic bank withdrawals or payroll deductions.

Where to place your emergency fund

It's important that your emergency fund be kept separate from your current bank accounts so that you don't give in to temptation and use it for other purposes. There are many different savings vehicles to choose from. People generally keep their emergency fund in a savings account, high-interest savings account, or TFSA. The most important thing is to invest in liquid products and vehicles so you can quickly withdraw your savings when you need them. An emergency fund is of no use if you can't access your cash!

It's also recommended that you choose low-risk investments to avoid fluctuations in your savings. It can be advantageous to invest in a TFSA to take advantage of potential non-taxable investment income, but always consider your risk tolerance and savings goal. A personal finance expert can help you make an informed decision.


Having an emergency fund gives you peace of mind and quick access to cash when life throws you a curveball. It can provide relief during hard times, help you deal with the unexpected, and put you in greater control of your personal finances.

Legal notes
1 The Fonds de solidarité FTQ's shareholders will receive 15% in tax credits from the Québec government and 15% from the federal government. They are capped at $1,500 per fiscal year, which represents a $5,000 purchase of shares of the Fonds de solidarité FTQ.

Please read the prospectus before buying Fonds de solidarité FTQ shares. Copies of the prospectus may be obtained on the Website fondsftq.com, from a local representative or at the offices of the Fonds de solidarité FTQ. The shares of the Fonds de solidarité FTQ are not guaranteed, their value changes and past performance may not be repeated.
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2 The FlexiFonds are distributed solely in Québec by FlexiFonds de solidarité FTQ Inc. a mutual fund dealer wholly owned by the Fonds de solidarité FTQ. FlexiFonds de solidarité FTQ inc. does not distribute any other mutual funds. Please consult your advisor and read the prospectus and fund facts before making an investment. The FlexiFonds are not insured by the Canada Deposit Insurance Corporation or any other government deposit insurer or by the Autorité des marchés financiers. The mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated.

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