How to Build an Emergency Savings Fund

Almost half of Canadians say their household has no money set aside for emergencies

A CIBC poll conducted by Harris/Decima reveals that 45 per cent of Canadians do not have an emergency savings fund, meaning an unexpected expense or emergency could have them dipping into RRSPs or taking on debt to get by. The poll also shows that experience counts when it comes to planning ahead, with younger Canadians less likely to have an emergency savings fund.

Key poll findings:

  • 45 per cent of Canadians do not have an emergency savings fund
  • By demographic, Canadians aged 45 to 64 are the most likely to be prepared for an emergency, with 60 per cent reporting they have emergency savings put aside
  • The likelihood of having an emergency savings fund declines among younger Canadians — only 51 per cent of Canadians aged 18 to 44 say their household has emergency savings

"Once you've experienced the financial challenges that come with a leaky roof or an unexpected car repair, the value of having some cash set aside for emergencies becomes clear," says Christina Kramer, Executive Vice President, Retail Distribution and Channel Strategy, CIBC. "Our poll shows an opportunity for more Canadians to start building up an emergency fund, to help get them through an unexpected expense and avoid dipping into long term savings to pay for a short-term problem."

Canadians aged 45 to 64 are more likely to say their household has an emergency savings fund. This could be attributable to life experience — they may have experienced an emergency in the past and have learned to set money aside for a rainy day.

"It's important to plan for your long term financial goals, but you also need to be prepared for the unexpected by having some funds set aside for emergencies," notes Ms. Kramer. "For younger Canadians who are just starting out financially, building an emergency fund should be a priority, even if it's only a small amount that you build on over time."

Emergency savings should be separate from your other savings accounts

It's important to distinguish between emergency savings, retirement savings and other savings goals. Your emergency savings account should be a separate account that you contribute to regularly, and while accessible, isn't touched for anything except emergencies.

Without emergency savings, you may need to turn to your RRSPs or to borrowing accounts to fund any emergency expenses, which can impact your ability to meet longer-term financial goals. "You don't want to be in a position where you need to cash out some of your RRSPs or take on debt because of an unexpected expense," says Ms. Kramer.

Even if you have built up emergency savings, it's important to remember that emergencies aren't once-in-a-lifetime occurrences. Once you’ve used your emergency savings fund, it's important to build it back up so that you are prepared for the next unexpected event.

How to build your emergency savings

To help you establish and build up an emergency savings fund, CIBC offers the following tips:

  • A good rule of thumb is to have three months of income saved for emergencies, though your own individual circumstances can vary — getting personalized advice is the best way to determine how to build your savings.
  • Work with an advisor to structure your savings to ensure you are meeting all of your savings goals. For example, you may wish to contribute to a registered account for your retirement savings, but a more accessible account for your emergency savings.
  • Contribute regularly to build your savings over time. You can set up a CIBC regular investment plan to automatically make regular contributions from your chequing account to your savings account to help you build your balance.
  • Adjust your savings contributions every time your household cash-flow changes. You should continue to contribute the same percentage of your income to your various savings goals — which will help you meet your goals faster without changing your lifestyle.
  • Use free budgeting tools to help you stay on budget — CIBC CreditSmart, available to CIBC credit card holders, allows you to set customized budgets and receive spend alerts if you exceed your planned budget for the month, helping you stay on top of your everyday budgeting and saving.

"There is a clear benefit to sitting down with an advisor and working through your savings plan to help you establish and maintain a plan that works to meet your life goals," adds Ms. Kramer.