5 Good Reasons to Build an Emergency Fund

We’ve already suggested that you build an emergency fund. This basically involves saving a certain amount of money that can cover any unforeseen expenses. Before you start saving, let’s go over why an emergency fund is essential. Here are 5 good reasons that will convince you!

In short

Be ready for unforeseen expenses
You’ll be prepared for all kinds of unexpected payments.
Ensure your financial security in the event of a loss of income
If you lose your job, you can take time to find a new position without having to panic.
Avoid getting into debt
You won’t have to use your credit card or take out a high–interest loan.
Maintain your long-term savings
You can avoid dipping into your RRSP and other long-term savings.
Enjoy peace of mind
One less thing to worry about. You’ll be safe in the knowledge that you can tackle any problem.

1.

Be ready for unforeseen expenses

Life is full of surprises. And not all of them are welcome! This is why everyone should create an emergency fund to cover unexpected expenses.

You might have to repair your windshield, call a plumber to fix a leak or rush your pet to the veterinarian. Worse still, a health issue could prevent you from working or you could suddenly lose your job.

In all cases, if you build up an emergency fund, you’ll be prepared for all kinds of unforeseen payments.

Bear in mind that unexpected payments are not the same as occasional spending such as purchasing winter tires, gifts or back-to-school supplies. In contrast to unexpected expenses, occasional payments should be included in your budget.

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2.

Ensure your financial security in the event of a loss of income

In the current economic context, many businesses are closing. If you lose your job, a financial security net can help make your jobhunting process less stressful. You won’t have to make a decision out of desperation and accept a position that you don’t like.

3.

Avoid getting into debt

Let’s imagine that your car won’t start and repairs will cost $1,000. If you don’t have the money, you’ll have to use your credit card or take out a personal loan. Worse still, you might have to resort to a quick loan. In all cases, interest rates will be high. It could take you a few months to pay off your debt. However, with an emergency fund, you could pay the total amount without getting into debt. This won’t have an adverse effect on your daily life.

4.

Maintain your long-term savings

When faced with an emergency, you might consider dipping into your retirement savings. However, if you withdraw from an RRSP, you’ll have to make a withholding tax payment. If you dip into another form of savings, you may have to put off upcoming projects. For example, if you’re saving to buy a used car, you might have to defer the purchase for several months. If you have an emergency fund, you can avoid this kind of situation.

5.

Enjoy peace of mind

There are financial and non-financial benefits to creating an emergency fund. You will also have inner peace. Even a small financial cushion can bring peace of mind. You’ll be safe in the knowledge that you can tackle any problem.

Have we convinced you that building an emergency fund is important? Now you can start putting money aside on a regular basis. Even a small amount. Ideally, you should save the equivalent of 3 to 6 months of your usual expenses. In an emergency, you’ll be very pleased with your efforts!