Headlines of late remind us of how vulnerable we can be in the event of a storm, with the destruction that historic Hurricane Irma has caused in the Caribbean and in the United States.
Have you ever given much thought to how vulnerable you’d be in the event of a “financial storm”?
“Life is completely unpredictable, which means that there is always the possibility that a financial emergency could be on your horizon. Whether it’s a job loss, a downturn in the economy, illness or injury, an unexpected event could spell financial disaster if you’re not prepared ahead of time,” says Jeff Schwartz, executive director, Consolidated Credit Counseling Services of Canada.
“Many people find themselves having to turn to debt to cover costs when these life events happen and are challenged to get back on their feet again. Committing to building up your emergency savings now, no matter how little, is your best bet to weathering a financial storm,” says Schwartz.
Here are some tips on how you can prepare for a possible financial storm and jump start your emergency savings fund.
How much do you have in savings?
If you don’t have a lot accumulated in emergency savings, you aren’t alone.
- According to a BMO poll, 24 per cent of respondents were living paycheque to paycheque
- 29 per cent had enough savings to last them a month or less in the event of an emergency
- A CIBC poll showed that 45 per cent of respondents had no emergency savings at all
Even if your emergency fund is small or non-existent, there is no time like the present to start building it up. It’s all about building good habits that will support your savings to grow into a tidy nest egg to rely on when you encounter unexpected expenses.
But I need to pay down debt first!
Although your focus may be paying down debt, accumulating savings is actually an integral part of your debt repayment plan. Make room in your budget to put away some savings in addition to your debt repayment.
Set a savings goal
Set a goal for how much savings you’d need to tide you over in the event of an emergency. There are differing schools of thought, but the most common approach is to have at least three months’ worth of expenses covered as a baseline. How much does that mean for you?
Set that target and mark your progress.
The very best way to build up your savings is to make it a seamless habit. Enroll in automatic savings deductions, either through your employer or through your bank or financial institution. Savings will come right off your paycheque immediately, and you’ll use the remainder for your budgeted costs.
Put this money out of reach
It’s a good idea to set your emergency savings apart from your other savings and/or accounts. It’s even better if you can put it somewhere where access is more difficult, avoiding the temptation to spend.
For instance, if you are opening up a separate savings account, don’t link your debit card to it.
Plan ahead on how to use these savings
Determine ahead what constitutes “emergency” spending for you, so that you’ve got a clear idea of what these funds will be used for. That’s a good way to make sure that your finances will stay healthy, no matter what comes your way.
Has an unexpected life event caused you to turn to debt? Get your life back by paying your debt down. We can help. Call one of our trained credit counsellors at 1-888-294-3130 or get started with our online debt analysis.