Raiding the emergency fund

emergency fund

In the event of a sudden job loss, an emergency fund may be the only thing keeping you from a severe financial crisis. Thus, these savings should be used only in a time of dire need – not for frivolous purchases. Unfortunately, many Canadians are ignoring this rule and depleting their emergency funds as they succumb to the urge to spend.

A new study by the Bank of Montreal shows that two-thirds of Canadians are raiding their emergency funds. Eliminating this safety net will make paying off debt during tough financial times a near impossibility. The study found:

  • 68% of women and 61% of men have used their emergency funds for non-emergency purchases
  • The average man takes $10,351 while women withdraw $5,920
  • Women tend to use the money for vacations, home renovations and large gifts
  • Men spend their savings on vacations, electronics and home renovations

While it’s promising to see that Canadians consider their rainy-day savings to be primarily reserved for emergencies, their willingness to dip into their fund for an indulgence could be a threat to their financial security,” said Christine Canning, Head of Everyday Banking, BMO Bank of Montreal. “A better approach would be to hold a designated fund for indulgences, to help keep expenses in check.”

Jeff Schwartz, executive director of Consolidated Credit Counseling Services of Canada, says spending your emergency fund is a dangerous game to play –

“How are you going to manage your debt if your financial situation changes?” asks Schwartz. “Paying down debt will be extremely difficult if you don’t have an emergency fund in the event of a job loss. It’s frustrating to see that many Canadians view things like vacations as more important than the long-term financial security of their families.”

In order to help Canadians maintain a solid emergency fund (enough to survive for 3-6 months with no income) with an eye toward living debt free, Consolidated Credit has compiled the following tips –

  • Out of sight, out of mind – The reason that time capsules are usually buried is so people don’t get impatient and open them up too early. The same concept can work for your emergency fund. Put this money in a savings account and avoid the temptation to look at it. This will ensure it stays fully funded and will be able to give you help with debt if you go through some tough times. Now, of course, you first need to learn how to save money…
  • How to save – The things we do best are those that we can do without thinking. Use this philosophy to guide you as you save. Utilize automatic payroll deductions that make savings easy and stress free. With a solid emergency fund in place, you won’t have to worry about making credit card minimum payments or how to pay off debt when your income decreases or disappears.
  • Stay out of debt – Dealing with debt can be a difficult task when dealing with a job loss. The best debt solution we can give you is to focus on living debt free when times are good. If you have your eye on a new TV, instead of taking on credit card debt by financing it, set aside a little bit each month until you can buy it outright. This philosophy will reduce stress and help you to get through tough times if they occur.

If you want to learn more about making responsible financial decisions, check out Consolidated Credit’s free Personal Finance educational section. If you’re struggling with debt, call one of our trained counsellors today at for a free debt analysis.

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