According to a February 2025 Scotiabank article, only 55% of Canadians had an emergency fund in 2024 that could cover three months of expenses, down from 64% in 2019. Even more concerning, the majority of Canadians under age 55 couldn’t afford a surprise expense of over $1,000.
These figures highlight a financial vulnerability that could derail your investment plans. Before focusing on growing your stock portfolio, you should build a financial safety net that protects you when life takes an unexpected turn.
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Why every Canadian needs an emergency fund
Unexpected expenses are inevitable. Your car might need costly repairs, your furnace could break down in winter, or you might suddenly lose your job. Without readily available savings, you may have to rely on high-interest debt or sell investments at a bad time.
Imagine being forced to sell quality stocks during a market correction simply to pay an unexpected bill. You could lock in losses and miss the eventual recovery. An emergency fund helps prevent this scenario by keeping money available when you need it most.
Think of it as financial insurance that provides flexibility and peace of mind. While $1,000 is an excellent starting point, many financial experts recommend saving enough to cover three to six months of essential living expenses.
Include necessities such as rent or mortgage payments, utilities, insurance, property taxes, groceries, transportation, childcare, home maintenance, and debt payments. For example, if your essential expenses total $6,000 on average monthly, aim to accumulate an emergency fund of $18,000 to $36,000.
How to build your safety net
Building an emergency fund from scratch can feel overwhelming, especially when living costs are high. However, you don’t need to save thousands of dollars immediately. Start small (even with just $25), then contribute consistently as your budget allows.
Look for opportunities to accelerate your progress. Review your spending and eliminate unnecessary subscriptions, prepare lunches at home, or use public transit when practical. You can also direct bonuses, tax refunds, and other unexpected windfalls into your savings rather than spending them.
Keep your emergency fund accessible and prioritize capital preservation over investment returns. A high-interest savings account can be a suitable option, although you should compare interest rates, fees, withdrawal conditions, and deposit protection. Emergency savings aren’t intended to maximize growth; they’re meant to be there when you need them.
Once you’ve established an adequate cushion, you can direct some of the money you regularly save toward building your long-term investment portfolio.
A potential stock to consider after building your emergency fund
For Canadian investors seeking a relatively defensive business, Empire Company (TSX: EMP.A) could be worth researching when market corrections create attractive valuations.
Empire operates in essential grocery and pharmacy retailing through well-known banners, including Sobeys, Safeway, FreshCo, Farm Boy, and Lawtons Drugs. Consumers continue buying groceries during economic downturns, resulting in more resilient demand than businesses selling discretionary products.
At around $49 per share at the time of writing, Empire is fairly valued and offers a dividend yield of nearly 2%. It trades at a blended price-to-earnings (P/E) ratio of about 14.6 and is expected to increase its adjusted earnings per share (EPS) by about 7% per year over the next few years.
The company has also increased its dividend for roughly 30 consecutive years. Its 20-year dividend growth rate of approximately 8%, alongside a 10.2% increase in June, highlights its commitment to paying a dividend that could grow at a nice pace.
Of course, there are risks in every investment. Grocery retailing faces competitive pressures, higher operating costs, and changing consumer behaviour.
The bottom line
Only 55% of Canadians reportedly had sufficient emergency savings for three months of expenses in 2024. Start building your financial safety net today, even with small contributions. Once you’re prepared for unexpected costs, you can invest more confidently for the future and consider quality Canadian dividend stocks such as Empire.
