Plan ahead for any unforeseen emergencies with a rainy day fund

A rainy day or an emergency savings fund is a safety net that protects you when an unexpected event - such as job loss or unexpected repairs to your home - affects your household's cash flow. Without access to cash, you might be forced to draw on your longer-term investments or use higher interest credit cards, possibly jeopardizing your overall objectives.

How much do you need?

Many financial experts recommend that you set aside the equivalent of 3 to 6 months' salary for an unexpected emergency. What's right for you will depend on your circumstances. If you have a large mortgage, loan payments, and ongoing education expenses for your children, you will need a larger safety net. If your house is paid off and you're debt-free, you'll probably need less.

Where to save

The money in your emergency fund needs to be secure and easily accessible. At the same time, you'll want to be earning as much interest as you can. A Tax-Free Savings Account (TFSA) is one obvious choice. Under the current rules, you and your spouse can each contribute up to the TFSA dollar limit for the year. Savings accounts, GICs, and mutual funds are all qualifying investments for the TFSA (accessibility depends on investments in the account). Earnings and withdrawals are tax-free.

You might also consider a savings account or a money market fund, as both offer competitive rates, safety, and ease of access.

In addition, you may want to set up a secured or unsecured line of credit. This would enable you to borrow, up to a specified amount, whenever you need to. Repayment terms depend on the type of line of credit.

A CIBC advisor can help you determine an appropriate rainy day fund amount, and identify product solutions that meet your needs.

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