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How To Save A 6 Month Emergency Fund

July 2, 2012
4 mins
Professional man chats on his phone in a bright coworking space with laptop closed in front of him

Once upon a time in my youth, I had a good job, a happy life, and no problems making ends meet at the end of the month. I didn’t realize just how good I had it - until it all fell apart. First, work slowed down until I was eventually laid off. Then a family member passed away and I had to fly home for the funeral (last minute flights can be very costly). Then my cat got very, very sick - an unexpected event that amounted to some very expensive vet bills. At the end of my month of many ordeals I was undeniably broke. With no emergency fund to fall back on, I had to ask my family for help. It was a humbling experience - one that I won’t soon forget.

Planning For the Unforeseen

Unfortunately, I’m not alone. No one is immune to a possible turn of bad luck that can lead to financial distress. If only I had planned accordingly, the situation would have been much less stressful. I should have been able to rely on an emergency fund... but I didn’t have one. And if the idea of creating one when so many of us have a hard enough time making ends meet at the end of the month seems tough, that's because it is; saving up for an emergency fund can seem darned near impossible.

What Is An Emergency Fund?

An emergency fund is exactly what it sounds like – a stash of money set aside for emergencies. While we’d like to think that such events are few and far between and that we’ll just deal with them as they arise, this is the kind of thinking that gets us into trouble. This is the kind of thinking that left me broke and desperate.

How Much Should I Save?

Most experts will tell you that you should save between 3 and 6 months worth of household expenses. Sounds like a lot, right? Here's the thing - that stash won’t look so big when it comes time to use it. Saving that kind of money requires some effort. The first step is to calculate how much you spend each month. If your expenses come to $4,000 per month, you’ll need to put away between $12,000 and $24,000.

Why So Much Money?

It might seem like 3 to 6 months worth of expenses is a lot of money – and in some ways it is – but you just never know what’s around the corner. Take my story, for instance. I had no idea that I was headed for a layoff, my grandmother’s death was a total surprise, and the vet bills that came with my cat’s illness were totally unavoidable. Even though I got a new job shortly after I was laid off, it still took me months to recover financially. And it could have been so much worse. What if the economy was so bad that I couldn’t find a job?  I hate to think how I’d get through that mess while being unemployed.

Putting Together An Action Plan

First things first, you’ll need to calculate how much of your income you spend on your expenses per month. Most people spend about 65 per cent of their income on monthly expenses. Do the math. What do you spend? Although you could likely lower your monthly expenses, if needed, let’s pretend that you can’t.

The next step is to choose a savings plan that you can afford. You could choose a 5-year plan, or you could fast track it and choose a 2-year plan. The choice is yours. After choosing your plan, calculate how much you need to set aside each month in order to make those savings. Remember to treat your emergency fund like a monthly bill and you’ll have your savings in no time.

Where you keep your money is also your choice. Talk to your banker for the best options. You could try a tax-free savings account. Or maybe you open a totally separate account and have automatic payments set up each month – or week. That’s what I did.

A Softer Landing

Preparing for the worst makes the worst not so bad. And if you never have to use your emergency fund then you can out it towards your retirement savings plan. Likely, though, at some point, you’ll need the money you save today. And when you do, the situation will be that much easier to deal with.

Good luck putting together your emergency fund!


The RATESDOTCA editorial team are experienced writers focused on sharing stories and bringing you the latest news in insurance and personal finance. Our goal is to provide Canadians with the information and resources they need to make better insurance and financial decisions.

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