How to Start an Emergency Fund

emergency fund saving money

There comes a time that most can use extra cash for financial emergencies. A number of things can happen at a moment’s notice and leave you scrambling to come up with the money necessary to take care of whatever the issue might be.

If you’re unfamiliar with what an emergency fund is, this would be a small savings that is only for unplanned expenses. It could be an unexpected car repair, something in the home needs immediate attention, or it could be a loss of income or something else. Any sort of unplanned bills or unexpected expenses. 

Why Do I Need an Emergency Fund?

Unless you have money in your savings account that might be used for unexpected expenses, then you should have an emergency fund. Without some sort of savings, surprise costs can set you back and disrupt your budget, leaving you little choice but to borrow. 

In a recent poll it was found that nearly half of Canadians are only a few hundred dollars away from financial insolvency. Having an emergency fund can save you from all sorts of financially related stress issues that anyone can do without, and putting away money for later is never a bad thing. What you want to avoid is having to take an emergency loan with bad credit because the interest rates are higher, and having that emergency fund may help you to avoid doing so.

How Much of an Emergency Fund Should You Have

This isn’t a question with a clear answer, and it can depend on a few things. The place to start would be determining what your goal is. How much do you want in your emergency fund? 

If you are only considering having some extra money available in case you were to have a repair or bill that needs taking care of, you might aim to save at least $1,000 for standby. If you are thinking about the big picture and what you might do if there was a loss of income, many experts recommend having at least three months worth of salary to provide a cushion so you can cover bills and expenses. Other experts recommend closer to six months of salary.

Our recommendation is to take both into account. But don’t be overwhelmed by the idea of saving several months’ salary, which is easy to do. Start by breaking it down into goals, starting with that first thousand dollars. 

What if Money is Tight and an Emergency Fund Seems Impossible

The idea of saving money when you are living paycheque to paycheque seems like a lot to ask, but let’s take a step back to look at how you can get started. 

A basic emergency fund can be a smaller amount, such as $500 to start. To have this on hand can help with taking out a loan, which would mean monthly payments. If you were to put $10 aside towards your fund each week, that’s $40 a month, which is about $480 saved within a year. If you can save $20 a week, that’s $80 a month. Within four months that would be $400 that you would have, just in case. Building up an emergency fund can be a big help for all sorts of unplanned events where you might need to come up with money quickly.

How to Save for an Emergency Fund

There are a few ways to go about saving up. Choosing the right one is really a matter of what you think would work best for you. 

You could use the ‘envelope method’ where you put cash aside in a well hidden envelope. However, it’s important to not touch the fund so for some the next suggestion might be more suitable, since out of sight can mean out of mind.

You might open a savings account and go about setting up automated recurring transfers. Having a separate account just for this purpose is wise. 

The key to building up your emergency fund is getting in the habit of making regular contributions to it. Also, to only use for true emergencies. 

RELATED: Canadian Guide to Saving Money

If you’re in the process of paying down credit card debt or any loans you may have, you’ll still need to figure out what kind of regular contributions you can make towards your emergency fund if you hope for it to grow. If you are carrying a lot of debt, you may choose to start with modest goals to start until you can pay off your debt. Ideally, you take the necessary steps to get started even if it’s a small amount for now. Automating your savings is one of the best ways of starting your emergency fund, and if you have debt to take care of, you can increase the amount you put away in the future.

RELATED: How to Eliminate Credit Card Debt 

If you prepare a budget and closely track your spending, you may find ways of cutting down on expenses and use the newfound funds for your emergency savings.

One other way of saving is the fact that many people are paid bi-weekly for their salary and have two months during the year where they will receive three pay cheques in a month. Putting away some or most of that third pay cheque can also help you get ahead. 


Now that you know the basics to get started for building an emergency fund you can combine this with other insights at GoodCheddar like budgeting and saving to have even more control over your personal finances. Just remember that other than winning the lottery or inheritance there are no quick answers with money management and that having a strategy and staying the course are often the path to develop smart spending habits to becoming financially fit with your money.

Wizard of words, macchiato maven, soothsayer, naysayer, aspiring wordsmith and Head of Content Marketing at GoodCheddar.