Why Do You Need an Emergency Fund?

Emergency Fund saves your butt

Every now and then we hit a point in life where credit cards aren’t enough to get us out of every financial mishap that crosses our way.  In the following article, I will give you a concrete example of how having an emergency fund account is crucial. I will also share my best tips I’ve been given to grow my account.

It’s much more fun to set money aside and use it when an emergency happens than to pay interest for many months ahead because you had to put it on your credit card.

I’ll elaborate on what an emergency fund account is, how to start and grow your emergency, fund, how much do you need and finally when to use it

A Little Back Story…

Having an emergency fund account saved our butts in the last year on a weekly basis. I fell sick a while back, I had salary insurance, but it took them 2 ½ months for them to pay me. Without my emergency fund, I would have gone into debt to the tune of 1500$ a month on a credit card with a 19.9% interest rate. Thank god I had already started to investigate frugal living because I cut down our spending as much as I could.

It didn’t stop there, the insurances held off payment for the following 3 months, then again for the last payment: I received my last payment 1 ½ after starting to work again.

With Christmas at our doors at that moment, I had to think quick. I proposed to our families to bring some food for Christmas, I made (for a fraction of the price) an amazing Ferrero Roche cake which made everybody happy because they go for 100$ a tiny cake in our area.

Everyone liked the idea and we are doing it again but in my boyfriend’s family this year! Christmas still took a bite out of the emergency fund, but a smaller one than usual.

You think our financial bad luck would have stopped when I went back to work. WRONG! I lost my job mid-summer. I wasn’t cut for front line customer service. I hated that part, but I loved the technical and paperwork aspect of it.

Not wanting to just take the first job I found, I knew my health needs have changed and I was now looking for admin work in my trade. Not much was available.

I was grateful that we were living with the bare minimum for the last years, it enabled us to grow our emergency fund. When I would receive the insurance money, I would reimburse my emergency fund and set aside the most money I could. I continued this even when I went back to work.

Living with the bare minimum enabled me to take time off and really work on my health and wait for the job offer that suited my needs.

For more of our financial mishaps, you can also read how to save when changing your oven and how I saved 1250$ on our Cell Phone Bill.

If like us you’ve been pilling financial mishaps, you know how important an emergency fund is. If not, if you’ve read the above story your probably interested in starting to save. so you don’t find yourself drowning even more into debt.

It’s not because it didn’t happen to you yet that it won’t happen! So, Start Saving!

What is an Emergency Fund?


An emergency fund is an amount of money kept for rainy days. It’s your safety net!

How many ways do you want me to spell the definition of emergency funds … EMERGENCY ONLY FUNDS!!! lol

Don’t rely on mommy and daddy’s money when something unexpected comes up.

And certainly, do not rely on Credit Card, Loans or line of credit. All that money you spent paying off interest will be better invested in an Emergency fun

Sorry, not sorry! how do people still not have one when they’ve lost everything.  I tell them about what they are, and people look at me dumbstruck. It’s not rocket science! If you’ve been paying your way; you know life gets in the way and hits you with an unplanned 1000$ invoice for whatever reason. And that’s a small Emergency

An emergency fund is one of the many steps YOU NEED to take to be financially independent

How to Start an Emergency Fund?


There are numerous ways to start an emergency fund. The following option is things I have tried and willing to recommend.

Cash Envelopes

If you’re just as scared of losing your money as our elders because they don’t understand the online financials or simply don’t trust banks, then this is the method you should use. If your working a cash job (which you should declare accordingly) or have loads of tips, this is a great method to establish your emergency fund.

The cash envelope method is simply setting physical money in a safe place in your home. It doesn’t have to be in an envelop, it can be in a box, container, folder, where ever you see fit.

Cash envelopes enable you to have money ready on hand. The only thing I’m not fond of with keeping cash at home is… if a fire or flood happens, you’ll lose all the money.

(I can already hear people saying but there also could be a financial market crash and you’ll still lose all your money. I know)

Separate Savings Account

I suggest opening a high-interest rate saving account. Not only will your money be set aside for rainy days, but it will also make money while you don’t need it.

I usually schedule an automatic transfer every week, I’m so used to it that I don’t notice the money being removed.

My technic when I started my high-interest emergency saving account, was to have a withdrawal fee of 5$ just to make sure I don’t spend it on the current season’s fashion boots. When I really need the money, I would call my bank and explain why I chose this type of account, and they credit me the 5$ fee for being a responsible customer.

*Disclaimer: depending on which bank you are doing business this trick might not work.

Separate Investment Account

My favorite way of saving up for this fund is investing in a TFSA, all the interests are tax-free up to a certain contribution limit (2018 limit 5.5k$ CDN).

Any other investment portfolio that you evaluate worthy is also just as good.

The most important thing to keep in mind when starting an Emergency fund is to be able to access it quickly. Therefore investments and saving accounts need to be open, not locked in for a certain period and with a hefty withdrawal fee if ever you need the money.

Example: I have GICs that come to term every 2 years if I withdrawal before the two-year term I pay penalty fees.

Let me know your favorite ways to invest your emergency fund that can be quickly accessed.

How to Grow your Emergency Fund

Flourishing Emergency Fund
Emergency Funds get funded over time. when there is no need for their use, you can watch them flourish in their accounts.

Sell your Stuff

People around us would regularly ask if we had money trouble when I’d go on house purge.  They were so wrong!  I was simple decluttering our home of unwanted, unused, and unnecessary things to sell, in order to make money for whatever savings we needed.

you can ready: The Ulimate 2019 Decluttering Guide to find a real goldmine in your own home

Get a Side Gig

Try getting another job or monetarizing your hobbies. If you play music, paint, write or any other talent try getting income from it and you’ll have a blast doing what you love.

Carpool with a College/Teammate

whether your driving to work or any activity, splitting the invoice for gas is always a great way to save!

Pocket change Jar

If you have any loose change hanging around, gather them in one place in a jar.  Once the jar is full you can add the funds to your emergency funds account.

Budget Diet/Challenge

Get the whole household involved and start by doing a no spend week and if you can a no spend month. The amounts you usually spend can be put towards.

How much Money Should I set aside

emergency fund wallet
The whole point of having an Emergency Fund is not to go broke, so you don’t need to go broke building it.

Several factors must be taken into consideration when trying to establish your emergency fund.

Your Income Stability

If your someone who has a good job with good insurance and know that your income is not at risk, you’ll need to set far less aside than someone who is a freelancer who doesn’t have a stable income stream.

My suggestion for someone with a stable job would be to build their emergency fund to 3 months worth of living expense. (housing, transport, medical, food, and living essential).

For people whose income vary greatly from a month to the next, I would recommend having 6 months worth of living expense. (freelancers, commission income, seasonal/contract worker)

Your Financial Situation

Depending on the amount of debt you have, you might not want to prioritize your emergency fund, but you’ll still need one. It’s going to be a lot bigger once you are debt free and really start growing. I wouldn’t neglect it and I’d set aside 1000$ to start out even though you might be drowning in debt.

If you are a homeowner, I would strongly suggest making a separate emergency fund for your home. I would start by setting aside 10,000$ just in case there is a roof/heating/cooling issue or even a flood. Now, this amount varies depending on the size of your home and the value of its finishing’s.

If you do not live in a country where health care is free, I would also set aside a decent amount depending on how much your insurances cover and how the medical system works. Your state of health will also determine how high this amount is. For people living in the States, 25,000$ would be a good start if you don’t own insurances.

Now I am not saying you should have all these different accounts right away, but slowing thinking about working your way to being financially independent isn’t a bad goal to have on your way to your dream life.

When can you Use your Emergency Fund?

Financial headaches
Even the strongest people around us will need time off in their life because they are paralyzed by a current situation, leaving them unable to work.

Job loss: if you lose your job and don’t find one fast, how are you going to pay your bills? That’s exactly why emergency funds exist. Even if you have unemployment insurance, how will you pay your bills if the unemployment bureau cheque is delayed? Do you really want to pay those 25-50$ late fees for every bill you missed? Though so!

Furniture/appliance breaking: we are holding a bet on which appliance breaks next, they are quite old. Not having any money set aside for furniture/appliance replacement we had to dig in our emergency fund. Unless your renovating that specific room most of the time people don’t save up for furniture/appliance replacement.

Burnout: have you ever been fed up or at the end of the rope and you need time off to take care of your self but can’t get medical leave. Why not take an unpaid sabbatical with your emergency fund? It might save you from going crazy and actually losing your job. I don’t mean that you empty your emergency fund when taking a break from work is allowed.

Sick family requires to take unpaid time off: A loved one needs your care? Having an emergency fund will enable you to take time off to take care of your loved one in need. Whether it’s a short unpaid sabbatical or reducing your hours at work, you can now do it without worrying.

Car breaks down: if you’ve been owning a car for a couple of years you know that they break, most specifically they break during the week your mortgage/rent is due. You can’t always plan for your car breakdown. My radiator cracked a couple of months back. It ain’t a normal breakdown and those parts are terribly expensive. I was prepared for a hose breaking but not that big of a component.

Stocking up: when huge sales happen, I tend to stock up for a year or so depending on the item. When this happens, I often blow our 150$ food weekly budget, so I grab a little from those funds and use it to save in the long run. I slowly reimburse it in the week following the big purchase.

House repairs: although you should have a separate emergency fund for your home, it might not be enough. Your line of credit might be maxed out as well. So if you’re really deep in over your head there is a possibility you might touch these funds.

Medical Emergency:  even if I only have to run to the chiropractor, I’m really happy to have it. It comes in handy when you’re on medical leave (work accident, depression) and your income insurances provider falls behind their payments and is left with no income for two months.  (This is a very common issue in Quebec). If you live stateside you can simply walk in the street than get hit by a car and go bankrupt because of a medical bill. No one can plan that much ahead


If you have yet to start an Emergency Fund, you might seem overwhelmed by what was mentioned above. Start by giving yourself a thousand-dollar goal and work towards that goal. Slowly but surely you will see the Emergency fund grow and you’ll be thankful not to pay extra interest on future mishaps.

Related Articles:

The 50/50 Debt Paying, Savings Building Method.

22 Frugal Ways to Reduce Spending

5 Saving Traps