April 22, 2025 | 5 min read
Even during the best of times, managing money can be a challenge. We always need to be mindful of what we’re spending in relation to our income, balancing the two so we don’t go into too much debt. But what if your usual income were to suddenly stop, or you had a large, unexpected medical expense that wasn't covered by insurance? How would you pay for everything? An ‘emergency fund’ might help.
An emergency fund is a savings account that contains a sum of money equal to a few months’ worth of your regular monthly expenses. Often kept separate from a daily banking account, it’s like a financial ‘security blanket’, containing money that just sits there, ready to be drawn upon if and when you need it.
Why have emergency funds at the ready? Because those savings can help keep you from going into debt to pay living expenses if your income suddenly stops (e.g., job loss). It’s essentially a financial resource that can give you time to continue paying your bills, while you look for ways to address any income shortfall.
Emergency funds can also help you cope with unforeseen, one-off expenses, such as:
According to the 2019 Canadian Financial Capability survey (CFCS), “… almost two thirds of Canadians (64 per cent) have an emergency fund that could cover three months’ worth of expenses.”1 For more insights from this survey, visit the Government of Canada web page for the CFCS survey.
Many advisors suggest having three to six months’ worth of expenses saved in an emergency fund. For example, if your monthly costs are $4,000, you’d want to aim to save from $12,000 to $24,000. The size of your family, age of your children, personal circumstances (e.g., current debt load, type of debt), and job stability would also impact your decision about how much to save.
Money saved in a high interest savings account (i.e., non-registered) is easy to access when you need it, and can earn compound interest over time. Tax-free savings accounts (TFSAs) have restrictions about when you can put money in and rules about taking it out. Thus, you may want to seek the advice of an advisor about the type of account that may work best for you for your emergency fund.
To build an emergency fund, you simply need to commit to a plan to save money for that purpose. Here's some tips that may help you get started.
Factor in housing, transportation, bills, groceries, then multiply it by three to six months. That’s the emergency fund amount to aim to save.
Think about how much you spend on coffee, lunches out, and other impulse purchases. Give up one or two things a week, and stash that money into your emergency fund.
Treat your savings like any other monthly bill. Set up an automatic transfer to your 'emergency fund' savings account when you get paid.
Start with whatever you can, even as little as $10 a week. Once you’re used to saving that amount, think about bumping it up a little ($15 or $20) and grow from there. It's okay if it takes a long time to save enough funds to cover three to six months' worth expenses. Getting started and keeping going is what's important.
Save your 'emergency fund' money in a high-interest savings account. They tend to offer a better interest rate than standard chequing or savings accounts. The Manulife Advantage account combines the benefits of a high-interest savings account with the accessibility of a chequing account; deposits earn interest, but are readily available to withdraw.
If you receive a larger windfall (e.g., income tax refund, bonus), consider setting aside some of it along with your other emergency funds. It may be a painless way to bolster your savings without impacting your current budget.
An emergency fund is like your personal insurance policy, proceeds of which you can access when you need them (e.g., if your income suddenly stops, or an unexpected expense comes along). Emergency funds could also help out if you have medical issues that prevent you from working, lose your job, lose a spouse’s income, or have an urgent expense.
While an emergency fund isn’t ‘required’, having money available for easy access when and if you need it could be a helpful financial strategy that could protect you in the future.
In Canada, the Financial Consumer Agency has published the following resource that answers many questions about how to set up an emergency fund.
Saving for an emergency fund is no different than any other savings goal, except that the funds get set aside and kept in case of a financial ‘emergency’.
To calculate your emergency fund requirements, you need to identify what your monthly expenses are. Once you have that number, multiply the total by the number of months of expenses you want to save for. Generally, it’s recommended you save a minimum of three months’ living expenses.
Once you have that figure, you’ll need to decide on where to deposit the money. That may mean opening a separate high interest savings account at your bank.
Next, you might consider automating a weekly transfer of a small amount (e.g., $10 per week) from your daily banking account to your emergency fund savings account.
The calculator on the Financial Consumer Agency of Canada website could help you set your savings goal to an amount that works best for you.(Note: Although it’s not an emergency fund calculator per se, there's an ‘emergency fund’ option under the calculator's ‘Type of goal’ dropdown.)
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