Saving For A Rainy Day: A Guide To Starting An Emergency Fund

We’ve all heard the old saying “save for a rainy day”. We heard it when we received our first allowance or a birthday card with money inside, when we opened our first bank account, talked to a financial advisor for the first time, and we read it in every personal finance book and blog that’s out there. But for something that is so ingrained in our minds, how many of us actually save for a rainy day?

If you’re grabbing for your phone to see how much you have in your savings account right now and realized that you put your last “extra” $20 towards a new car payment, paying down your student loan or on a pizza, don’t worry you aren’t alone. Canadians just aren’t saving like they used to. In fact, in 2018 the rate that people save in Canada dropped to the lowest it’s been in over a decade. So if Canadians aren’t saving as much and are relying on their savings to help pay off debt and cover other day-to-day expenses, how exactly are we supposed to put money towards an emergency or “Rainy Day” fund?


First things first. What exactly is an emergency fund?

Typically, an emergency fund is a sum of money that you house in a savings account to help cover unexpected expenses when they arise. In the eyes of most financial planners, emergency funds tend to be used to cover monthly living expenses when you have a job loss or injury or illness that prompts you to take time off work. However, emergency funds can help cover repairs to your house or car, unexpected medical or veterinarian expenses, legal fees, increased insurance payments, loss due to natural disasters and so much more.

Emergency funds are also a great source of available income if you do not have access to credit. After someone files for bankruptcy, it may be difficult for them to receive credit cards or lines of credit from financial institutions. Having some savings in an emergency fund can help cover any unexpected costs during this period in time when you cannot rely on credit.


The traditional rule of thumb for an emergency fund is to have a savings account with enough money to cover three to six months’ worth of your expenses.  Generally, people underestimate how much their monthly expenses are, so three to six months’ worth can seem like an overwhelming amount.

The first step to creating an emergency fund is to look at your current savings, expenses and financial goals to see what flexibility you might have towards diverting some of your savings into your “Rainy Day” fund.

Start small, and put aside $10 or $20 a week. Set up an automatic withdrawal on paydays that puts the money straight into your emergency fund before you see it. You can also try finding savings elsewhere in your budget. Try giving up buying a coffee every day, or have a “free” date night once a month with your partner where you partake in free events and activities instead of buying dinner or going to a movie. The money you save making these small adjustments will be a great addition to an emergency fund.


The key to any emergency fund is that it needs to be easily accessible. Unexpected expenses are just that: unexpected. Your money needs to be accessed quickly. While investing your savings into stocks, mutual funds or an RRSP may be tempting, it often takes time to access your money and some even carry financial penalties and can be taxed.

When choosing the best savings account for your emergency fund it’s important to remember the following:

  • Make sure it is a separate account from your day-to-day savings or chequing account.
  • Look for an account that has no or low transaction fees.
  • Find a savings account that offers earned interest. You may be able to earn a little bit from the money you save.
  • Ensure you can make withdrawals from the account without any penalties.


Even though everyone preaches the importance of an emergency fund, it is important to make sure your emergency savings plan aligns with your financial goals. Some people get caught up in preparing for the unknown and can lose sight of other important financial goals like paying down debt, saving for retirement or saving for life experiences like a home, a child or a special vacation. Emergency funds don’t form overnight. They take time, planning and discipline. The best thing you can do is properly budget your income and expenses to ensure you are meeting your financial obligations and are not over saving money that may need to be used elsewhere.

If you have recently experienced a life event that you were financially unprepared for and are now carrying the burden of overwhelming debt, we’re here to help. We can discuss the debt relief options available to you during a free, one-hour consultation with one of our Debt Professionals.

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