The Ball is now ROLLING, good for you!
Now is time to establish an emergency fund. It can protect your finances and provide peace of mind in unexpected situations.
How Much to Put Aside?
In general, you’ll want to save enough to cover what you might reasonably need during a temporary loss of income or a major unexpected expense. You may not want to put more into this fund than necessary because it will not grow (typical checking accounts provide 1.25% interest or less).
Keep it in a Checking Account
Emergency funds should be kept in a very safe, easily accessible place—like a checking or savings account—they typically won’t generate high returns.
Remember The Budget from Step 1?
The goal is to strike a balance: set aside enough to protect yourself from financial shocks, while still keeping the rest of your money working toward higher long-term returns. Knowing what your monthly expenses is going to come in handy now!
Have you heard of the 3-6-9 Rule?
Here you will multiply your monthly expenses by 3, 6, or 9 months based on your risk tolerance.
3
Recommended
Let’s say your monthly expenses are 3,000$, you will save up 3 x 3,000$ = 9,000$ and keep that in a checking account.
6
Safe
Here you would save up 6 months of expenses so $18,000. It may seem a little excessive but can be good for people who already have established savings.
9
Maybe a little over board
Here you would save $27,000, typically you should max out TFSA, FHSA and RRSP before keeping this much “cash” liquid. More information on FHSA and RRSP will be available in later steps.
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