Learn how to save money for a rainy day and avoid financial stress.
What is an emergency fund and why do you need one?
An emergency fund is an account that you can use to cover unexpected expenses, such as medical bills, major repairs, or income loss. Having an emergency fund can help you avoid going into debt, dipping into your retirement savings, or missing important bill payments. It can also give you peace of mind and a sense of security in case of an emergency.
How much money should you save for an emergency fund?
The amount of money you need for an emergency fund depends on your income, expenses, and personal situation. A general rule of thumb is to have enough money to cover three to six months of your essential living expenses, such as rent/mortgage payment, food, utilities, and insurance. However, you may need more or less depending on your circumstances. For example, if you have a stable job, family support and low debt you may need less than someone who is self-employed, has a high debt and lives alone.
How to start saving for an emergency fund?
Saving for an emergency fund may seem daunting but it’s not impossible. Here are some steps you can take to start building your emergency fund:
- Set a realistic and specific goal. Decide how much money you want to save and by when. For example, you may want to save $5,000 in one year.
- Open a separate account for your emergency fund. Choose an account that is easy to access and earns some interest. We can help with this part!
- Automate your savings. Set up a direct deposit or a recurring transfer from your chequing account to your emergency fund account. This way, you can save money without thinking about it.
- Track your progress. Monitor your balance to check how close you are to your goal.
How to keep your emergency fund intact?
Once you have built your emergency fund, you may be tempted to use it for non-emergency purposes, such as taking a vacation or paying off a credit card. However, you should try your best to avoid the temptation and only spend your emergency fund on real emergencies, such as:
- A medical emergency that is not covered by your insurance.
- A major car repair that is essential for your transportation.
- A loss of income that affects the ability to pay your bills.
- A disaster that damages your home or property.
If you do tap into your emergency fund, make sure you replenish it as soon as possible. You never know when the next emergency may occur so it’s better to be prepared.
How can Innovation Wealth help you with your savings journey?
Creating an emergency fund can seem daunting, especially if you’re living paycheck to paycheck or have other financial goals. But with Innovation Wealth, you don’t have to do it alone. We can help you set up a savings plan that suits your needs and budget.
If you’re ready to take this step towards saving, contact the Innovation Wealth team today. We would be happy to help you take the first step towards financial stability and peace of mind.
