Emergency Preparedness week gives Canadians an opportunity to examine their current emergency plan. What this week underscores is taking time when the waters are calm, so to speak, to prepare for an emergency. Planning ahead can help mitigate the damage in the event of a disaster.
What if you applied this same proactive approach to your finances? By putting aside savings to cover costs during an emergency, you can avoid loading up on debt, which can be hard to repay down the road.
A survey from the Bank of Montreal shows, while many Canadians are getting the message about the necessity of emergency savings, lots of people are still living paycheque to paycheque, hoping for the best.
According to the survey:
- Canadians who have emergency savings, have on average $41,694
- 54 per cent of respondents have less than $10,000 put away
- 24 per cent of respondents said that they have very little or nothing in emergency savings
“When you are living paycheque to paycheque and trying to balance your household budget, it can be hard to accumulate emergency savings.,” says Jeff Schwartz, executive director, Consolidated Credit Counseling Services of Canada.
Expect the unexpected
“When it comes to debt trouble, there is a misperception that excessive debt comes from money mismanagement only. However when an unexpected emergency arises, it can have a negative impact on a household’s finances,” says Schwartz.
Unexpected life events (illness, death, divorce) are not only stressful emotionally; they are stressful on your household finances as well. Your best bet to recovering emotionally and financially from an unexpected expense? Have the cash on hand before disaster strikes.
How much do I need?
There are varying schools of thought on how much you need to put away in emergency savings. A general suggestion is to have enough cash on hand to cover your household expenses for six months. You need to calculate what that would be, based on your mandatory expenses every month.
It can sound a little daunting to think about accumulating six months’ worth of salary off the bat, so break that down into smaller pieces. For instance, if you are starting with nothing, aim for $500 to start, contributing the same amount each month.
Make it automatic
Your best bet to acquiring savings is to make it a habit that is as seamless as possible. Utilize automatic debit either through payroll deductions at work, or through your bank. You can start small, if you must. Every little bit counts!
You may feel that your budget is stretched pretty thin as it is, but you’d be surprised at how you’d be able to gather savings, simply by tweaking your budget or by making some sacrifices.
Choose to eat in rather than dining out; bundle your phone, cable and internet packages; cancel magazine subscriptions and read them online; carpool to work- and the list goes on.
Are you having trouble balancing your household budget because of heavy debt? Does your monthly spending include room for savings? We can help. Call one of our trained credit counsellors
or check out our free online debt analysis.