How Much Emergency Fund Should I Have?

You should have 3-6 months' worth of essential living expenses saved in your emergency fund.

For most Canadians, this typically ranges from $12,000-$24,000, depending on your monthly needs.

What is an emergency fund?

An emergency fund is money set aside specifically for unexpected expenses or financial emergencies. Think of it as your financial safety net when life throws curveballs like sudden car repairs, medical bills, or job loss.

This money should be kept separate from your day-to-day accounts in an accessible savings account.

Emergency fund vs. "forget you" fund

Don't confuse these two types of savings. Your emergency fund protects you from unexpected disasters, while a "Forget You" fund gives you freedom to make major life changes, like leaving an unfulfilling job or relationship.

Both are valuable, but they serve different purposes.

How to build your emergency fund in 4 steps

Step 1: Calculate Your Target Amount

The right amount varies based on your situation. Start by adding up your monthly non-discretionary expenses:

• Rent or mortgage

• Utilities

• Food

• Insurance

• Transportation costs

• Child care

• Debt payments

Multiply this total by 3-6 months. For example, if your essential monthly expenses are $4,000:

• Minimum target (3 months): $12,000

• Ideal target (6 months): $24,000

Step 2: Determine Your Savings Rate

Review your income and expenses to figure out how much you can realistically save each month. After covering necessities, direct whatever you can toward your emergency fund.

Remember that unexpected money like tax refunds or work bonuses can help out a lot.

Step 3: Choose the Right Account

A high-interest savings account (HISA) is typically best for emergency funds. You want your money to be:

• Separate from everyday spending accounts

• Easily accessible when needed

• Earning some interest while it sits

Step 4: Automate Your Savings

Set up pre-authorized contributions (PACs) to transfer money automatically from your chequing account to your emergency fund.

You can schedule these weekly, biweekly, or monthly. Even small, consistent deposits add up over time.

Practical strategies when money is tight

• Start small: Even $5 per month is better than nothing

• Use budgeting tools: Apps like KOHO can help track spending

• Cut unnecessary expenses: Review subscriptions, eating out, and other non-essentials

• Save windfalls: Direct tax refunds, gifts, or bonuses to your emergency fund

Financial peace of mind: worth every dollar

Building an emergency fund takes time and discipline, but the security it provides is invaluable. When unexpected expenses arise, you'll face them with confidence rather than panic.

Your emergency fund is more than just money in the bank; it's buying yourself options and peace of mind during life's unpredictable moments.

Start where you are, be consistent, and watch your financial safety net grow stronger each month.