THE IMPORTANCE OF AN EMERGENCY FUND
Rule#2 Build up an Emergency Fund of 6 months living expenses.
Like it or not, life is full of little surprises, some good and some not so much. If you don’t plan for the bad surprises, your retirement goals can go out the window quickly. Life and disability insurance is a big part of planning for the unexpected events. This specific blog is about building up an emergency fund before starting to save for retirement. We’ll talk about insurance later. Emergency funds are actually very straight forward.
Figure out how much money you and your family need to survive for 6 months assuming all your income streams have stopped. Make sure you include everything: food, shelter, debt payments, transportation, clothing, etc.
When you get to that amount, start working on saving that amount of money. Put the money in a plain vanilla bank account with one of the big Canadian banks, hopefully one that pays some interest and don’t touch that money unless a real and true emergency affects your life.
A last minute trip to Florida after a stressful winter does not constitute an emergency. Losing a job, becoming injured or having to take time off to help a sick relative do. There is a pretty good chance one of these things will happen to you at some point in your working career. Be ready for it.