10/21/2014 05:47 EDT | Updated 12/21/2014 05:59 EST

How to Build an Emergency Fund

Thirty-nine per cent of Canadians surveyed have no idea how they would pay for their expenses if they had no income for six months -- and the number swells to 44 per cent for those under the age of 35. Here are five easy steps you can take to start building up an emergency fund.

hand holding a roll of bank...

I never cared for the phrase: "saving for a rainy day." What exactly is a "rainy day?" It's some kind of far-off, hazy problem that is perpetually on the horizon but never in front of us. Sure, you might put some cash away, here and there, but it's easy to neglect this concept. And besides, a lot of us have too many things to worry about in the here-and-now to care about tomorrow.

Unfortunately, a recent study commissioned by TD Insurance confirms this mentality, and the implications could wreak havoc in the lives of Canadians.

The survey points out that 39 per cent of Canadians surveyed have no idea how they would pay for their expenses if they had no income for six months -- and the number swells to 44 per cent for those under the age of 35.

The same report found nearly 70 per cent of respondents say they have "some" or "a lot" of debt, and of those with the most debt, 60 per cent have no financial plan in place in the event of sudden illness.

This is a tremendous roll of the dice. Illness is nearly impossible to predict, but statistics do show that half of all men and one third of women will suffer a critical illness before age 65. Medical technology means that more and more of these people will make full recoveries, but the fact remains that the odds of some of us getting seriously ill are the same odds as landing heads or tails after flipping a coin.

Suddenly, the "rainy day" sounds more like a downpour than a light drizzle.

Here are five easy steps you can take to start building up an emergency fund:

• Set a goal -- The TD Insurance survey said Canadians would need an average of $45,609 in savings if they could not work for a year. It might be a better idea to start with a smaller goal, like $1000 in a savings account. Then try to build it so that it'll cover a couple months' expenses, then keep going. Treat it like a bill and make monthly payments.

• Sell something -- Have a look around your house for some valuable items that you never use. If you have no intention of dusting off that treadmill, you could sell it for a quick influx of cash that could go straight to your savings account. Selling off old impulse purchases can help jump-start your savings initiatives.

• Know what it's for -- Nothing kills your emergency fund quite like misuse. Pay close attention to the term emergency. Does a winter vacation constitute an emergency? How about a big-screen TV or a fancy meal? If -- or maybe we should be saying when -- you find yourself in a true emergency, you'll be glad you had the restraint to save.

• Know where to stash it -- Keeping "emergency money" in your chequing account will leave your cash in the line of fire and increase the odds that you'll spend it. I don't recommend stuffing it in your mattress either. Do some research and find a savings account that works for you, such as a tax-free savings account (TFSA), which will let you keep any interest you might accrue, tax-free.

• If you can't get ahead, get help -- It's hard to put money aside when a big chunk of your income goes towards loan payments. In order to get ahead, you need to stop falling behind. Speak to a financial advisor or a non-profit credit counselling service for the professional help that you might need to take care of your debts.

Hopefully you'll find that taking some time today, to focus on tomorrow, will allow you to breathe a little easier. Securing your financial future is an important part of every household budget.


  • Get It Automated
    Get It Automated
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    “The easiest way to save a bit of dosh is to automate your saving,” says Vivi. “Set up a standing order with your bank and take the hassle out of remembering to save. If £50 or even £20 is saved each month (especially into a new ISA) your pot will get bigger fast. Increase the amount you save by £10 or £20 on your birthday, at the start of a new year and at Halloween and watch your money grow.”
  • Look Out For The Three Cs
    Look Out For The Three Cs
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    “When you're shopping, in person or online, one of the easiest ways to make big all-round savings with very little effort is get into the habit of using the Three Cs,” explains Penny. “That's Comparison, Codes (or vouchers or discounts), and Cashback. Comparison means you don't overpay, codes get you extra money off, and cashback is the icing on the cake where you might belatedly get a small refund on what you spent.”
  • Use Less, Use It All, Use It Twice
    Use Less, Use It All, Use It Twice
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    This is an obvious one, but you would be amazed at the amount of products that get wasted every single day. You don’t have to go without your favourite things, but as Rebekah Hoffer from Simply Rebekah advises, “if you use a little less of them, you’ll stretch those products further." "It is better to go back for a little more shampoo than to use too much to begin with!” Similarly, don’t waste what you buy. Rebekah says: “Keep a container in your freezer for leftover veggies that you can add to regularly. Then when the container is full, make soup. Also, cut the tops off your ‘empty’ toothpaste, face wash, and lotion… there is more left in there than you think!” Before you throw anything away, check to see if you can re-use them. Things like tin foil, paper towels and gift bags and bows are often binned after one use.
  • Forget The Status Symbol
    Forget The Status Symbol
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    You don’t have to buy a top name brand when value brands work just as well, advises My Family Club: “Don’t feel under pressure to have what other people do." "And teach your children not to worry about peer pressure either, so they don’t feel the need to have all the latest gadgets and brands.”
  • Make Friends With Your Bank
    Make Friends With Your Bank
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    Cashback cards can help you save money, says Karen Bryan from Help Me To Save, but warns they’re only cost-effective “as long as there are no additional fees for paying by credit card instead of debit card, the card doesn't have an annual fee and you pay off the full credit card balance to avoid paying any interest on purchases.” Vivi adds: “Ask your bank if they have a ‘save the change’ facility. Lloyds, for example, round up every card purchase and save the change in a separate account. So if you buy a coffee using your card and it costs £2.30 then 70p will automatically be deposited into your saving account. Simple.”
  • Drive Smart
    Drive Smart
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    Doing your research on finding the cheapest car insurance, MOTs, breakdown cover and so on can obviously save you money, but “it’s possible to save up to £800 a year on petrol if you change the way you drive”, says Cass Bailey of Frugal Family. “Keep your tyres inflated to the correct pressure. As well as making your car more fuel efficient, it’s also safer for you and your passengers,” she points out. “Don’t use your air conditioning unless you have to – just wind a window down. Turn your engine off as soon as you reach your destination.” You’ll find more of her ideas on fuel-efficiency here
  • Get An App
    Get An App
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    “Turn watching the pennies into a game,” says Penny. “It's relatively painless, and it's far easier than mentally forcing yourself to 'sit down and do the household accounts. I'm currently trying out the free version of the Toshl Finance app and finding it attractively laid out and easy to use. It even has little cartoon 'savings monsters' to point out areas where you could save more."
  • Stick To Cash
    Stick To Cash
    If you have a certain amount of money in your purse, you’ll think twice about spending most of it on impulse. As Vivi points out: “It is always easy to overspend if you use a credit card, when cash runs out it's done. You are in control.”
  • Don't Spend Money!
    Don't Spend Money!
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    Congratulations. You’ve been saving money without realising even as we speak! You can pass the time reading sites just like this at no cost. Anna Newell-Jones, of And Then We Saved suggests you go even further: “We all have our favourite blogs and websites; see what the beginning was like by digging through the archives.”