Give Me Back My Five Bucks

2016 is the year of the emergency fund

Rob Carrick recently proclaimed 2016 as the year of the Emergency Fund. I’m a huge fan of having at least 3-6 months worth of living expenses set aside should you have to face any financial setback. Rob said it best when he wrote, “think of an emergency fund as insurance against a short-term setback that affects your long-term financial goals.”

My Emergency Fund isn’t something I have thought about much over the last couple of years. But I’ve certainly used it – like when I got laid off, when my laptop needed repairs, or when I accidentally cracked my car windshield and needed to pay the ICBC deductible. Then, once life settled back down, I topped the EF back up to its original amount, and stopped thinking about it again.

Related: When is it okay to use your Emergency Fund?

Right now my $10,000 EF sits in a high-interest TFSA – this represents about 5-6 months of normal living expenses, and it’s the amount I’ve always been comfortable with. I’m confident if I lose my job, I’ll be able to get a new one within a couple of months. And I don’t see a one-time emergency costing more than $10k at the moment (since I’m renting).

It took me 6 years to save up to $10,000. I started saving $25/month back in 2006, got to $5,000 in 2011, and finally hit $10,000 right before I left for Germany in 2012. It was not a fast process, and I had a bunch of setbacks along the way… but it was definitely worth it. So don’t feel discouraged if you feel like it’s taking forever to fund your EF (I felt that way too). Even just a little bit of cash saved up is better than nothing, and you’ll get there eventually. :)

Instead of keeping a chunk of money for emergencies, a lot of people will consider using a line of credit or a credit card if an emergency takes place. I personally really dislike the idea of going into debt in order to take care of a financial emergency, or relying on a bank to get you through. With cash, you don’t have to worry about payment schedules, interest rates, or creating a potential mountain of debt. Having your own money on hand gives you options. You can all of the shots, and that’s a huge step towards creating financial independence. And personally, I’m okay with the low interest rates in my “high interest” TFSA – because like Rob said in his article, “the emphasis is on safety over returns.”

Related: Creating a bare-bones budget

How did you determine what amount was right for your Emergency Fund?
Or are you using the line of credit/credit card method instead?

Author: Krystal Yee

I’m a personal finance blogger and marketing professional based in Vancouver. I’m a former Toronto Star (Moneyville) columnist, author of The Beginner’s Guide to Saving and Investing, and co-founder of the Canadian Personal Finance Conference. When I’m not working, you can usually find me running, climbing, playing field hockey, or plotting my next adventure.


  1. Robert says:

    My emergency fund mostly considers the cost of rent and student loans (i.e. my largest personal expenses). I extended the amount to save to 12-months, so I would be extra prepared.

    I can fairly easily apply for forbearance on my student loans, but since the interest still accrues during forbearance it’s worth it to keep paying whenever possible.

    Having the extra money on hand, if something happens, gives me more leeway when times get financially tough.

  2. Kayla says:

    Hi Krystal!

    $10,000 feels like a good size of Emergency Fund for me too (I started to build mine slowly after starting to read your blog a few years ago!). That is about 6 months of bare-bones living for me. To me, the peace of mind is so worth it! Right now, I have about $1500 in there, as I had to use some of it during a car breakdown situation. I am thinking of moving it out of my Coast Capital Savings account into something with Tangerine/anywhere else, so that it is still liquid but not too convenient for me to dip into for non-emergency related things.

    Thanks for this post Krystal!


    PS: That being said, I do find it challenging to incorporate all of the “shoulds” into my budget–I *should* have an emergency fund, *should* pay off my student loan at a rate quicker than 15% of my paycheck, *should* save for retirement, and so on. I also live on the West Coast (Victoria BC!) so I find the expenses here to be a bit steeper than what I see in other provinces.

    • Liquid says:

      No worries, Kayla. You’re probably already doing better than most Canadians. I don’t have anything saved in my emergency fund, and my retirement account is simply going to be whatever I have to my name at the moment I decide to retire, lol. Shoulda coulda woulda with 15% here and 20% there are just arbitrary guidelines that may work for one person but not for everyone. The labour market and economy is changing so quickly that nobody today can know for sure what’s the best way to manage our finances for the best possible retirement. So hakuna matata. :) As long as we make decisions based on our personal relationship towards money, empirical facts, and sound reasoning, then everything will definitely work itself out.

  3. Liz says:

    First of all I really like this blog! My approach to an EF is to be able to live in the manner I am accustomed to for at least 14 months, or 20 months at bare bones level, depending on the situation and how things go. I keep the cash in a high yield savings account. I’m a very cautious person.

  4. I love that you brought up the point that many people really on a credit card for emergencies vice saving up the cash. I use to be that person. The truth is if your not good with your money, there is always an emergency and likely that card will be maxed out when you really need it.

  5. Anonymous says:

    Good post. But why do you have your emergency fund in your TFSA? Don’t you think that your TFSA would be better utilized if it were fully invested? After all, how much taxes are you paying on the interest that the $10k is spinning off?

    My emergency fund is in a five year non-registered GIC ladder. They’re redeemable if necessary.

    • Krystal Yee says:

      As of right now I have a lot of room in my TFSA so I wouldn’t be able to have it fully invested even if I wanted to. If I can ever catch up, I’ll move that cash out… but it’ll probably be at least a couple years. :)

    • The downside to keeping your emergency fund in a non-registered account is that you’re going to lose half of the already-very-low interest to taxes. At some point, a shoe-box might be just as good a place to keep it.

    • Bridget says:

      A fully invested TFSA is a TFSA fully at risk. You do not regain contribution room for investment losses, so its unwise to have a TFSA is that 100% invested in the stock market.

      • Anonymous says:

        That is true, but why would that ever happen? Again, the TFSA should not be used for an emergency fund. That’s a waste of a TFSA. It should be fully invested for some far-off purchase or retirement. You should obviously adjust the ratio of fixed income to equity to match your investing time frame. If you’re time frame is short, use a non registered HISA and keep your TFSA for something else!

  6. Jessica says:

    I’m just starting to get my financial house in order, so my first goal is to have one month of my very basic expenses covered. It’s actually very inspiring to see that you tackled your EF with just $25 a month when you started. Just goes to show that every little bit helps!

  7. Jordann says:

    I’m also in the $10,000 camp. That works out to between 6 and 24 months of expenses, depending on whether my husband is laid off, whether I’m laid off, whether we can get EI or not, how long the EI takes to kick in, etc.

    I also keep mine in a high-interest savings account in my TFSA, along with my house down payment fund, for a total of about $26,000 right now. Really though, that whole account is my emergency fund, because if an emergency were to occur and my EF was drained, the house fund would be the next thing on the chopping block.

  8. I agree that having money set aside for emergencies is a good idea, and relying on credit cards to get you through is really NOT.

    But that said – I don’t keep 6 months of cash sitting in a ‘high-interest’ savings account (which pay around 1% these days).

    I have money invested in a variety of things (stocks, mutual funds, bond funds…), which over time have earned a lot more than 1%/year. AND I have an unsecured Line of Credit with a limit roughly equal to 4 months of expenses.

    I know the down-side to relying on investments for emergencies (the emergency may hit at a time when the stock market is way down, and you’ll have to sell at a loss). But I have a fairly broad selection of investments, some of which tend to be ‘up’ at any given point in time. And I don’t have to sell instantly – I can rely on the Line of Credit for the short term and then pay it back as I DO sell investments.

    I actually wrote an article about this a while back:

    That said – one of the reasons this approach works for me is that I have fairly good job security, so odds are good that I won’t need to draw on the line of credit. In Jordann’s case (earlier comment) I would agree that keeping the house down-payment fund in a high-interest savings account is a lot more prudent than investing it and hoping that the investment is way up when she finds the house she wants to buy.

  9. ARBM says:

    I just started on my emergency fund this year, but am happy with my progress thus-far. I can definitely make 2016 the year of my emergency fund… My first goal is a $10,000 emergency fund, but that will just be my first milestone. I think $20,000 or $30,000 would be the eventual goal so that I could really say that I could lose my job for a year and not have to worry…

  10. Steven says:

    I find the line of credit approach to be the most efficient emergency fund. Even more so if you have interest acruing debts like a mortgage, car loan, etc. I don’t see the point of 10k doing nothing when it could be paying debts.

  11. Erik says:

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