During this time of economic uncertainty, it has never been more crucial to have an emergency fund. This helps to ensure financial stability and build peace of mind during trying times, such as these. However, it’s also crucial even during times of strength, because Canadians never know when an emergency can arise. So here is how to build a solid emergency fund, and how much Canadians should save.
Getting started
Before you start putting money aside, it’s crucial to determine a savings goal. Financial experts often recommend saving between three and six months’ worth of living expenses. This, however, can vary depending on individual circumstances such as your income stability, family size, and expenses.
So, it’s another important step to track your income and expenses to understand where your money is going. That will help identify areas to cut back and allocate more towards your emergency fund. You can then start small, creating an achievable monthly or bi-weekly goal that can be put into your account through automated contributions.
That being said, there are other points to consider before you start making contributions on a regular basis. So let’s get into what to consider placing in your emergency fund as you start saving.
Considerations
While having an emergency fund is crucial, there are some other points to consider. For instance, don’t start putting money aside if you’ve got a lot of debt on hand. Instead, consider putting $1,000 into an emergency fund, and working on your debt.
This can help with your emergency fund in the long run! First off, prioritize putting as much as you can afford each month towards your highest-interest debt. Do this through automated contributions until it’s paid off.
From there, simply change those contributions to your emergency fund! This can create your emergency fund before you even know it and keep you on track to avoid temptation. Then, reevaluate regularly. While the goal is to create an emergency fund, you shouldn’t be putting yourself into debt to do it.
Make the most you can
To maximize your growth and emergency savings, consider putting your emergency fund into a Tax-Free Savings Account (TFSA). This way you can earn higher interest, maximize growth, and take it out whenever you need without being taxed.
Consider a strong, stable investment in this case. One that I would consider is a conservative investment with high-quality, liquid assets and minimal risk of loss. In that case, you might want to consider the Vanguard Conservative ETF Portfolio (TSX:VCNS). This exchange-traded fund (ETF) focuses on a combination of income and moderate long-term capital growth. To do this, it invests in a mix of Canadian and global equity and fixed income securities.
VCNS ETF currently offers a dividend yield to be reinvested in an emergency fund at 2.54% as of writing. What’s more, shares are up 9% in the last year and 16% since coming on the market. That isn’t enormous growth, but it’s stable. And that makes it the perfect option for those seeking conservative growth for their emergency fund.
