Nearly half of Canadians (49%) have zero savings for an emergency. Over half (53%) rely on their next paycheck to cover emergency expenses. In this article, we will show you why it’s important to have an emergency fund and what you can do to build one.
Reason #1: Protect Yourself and Your Family
According to the latest MNP Consumer Debt Index, 51% of Canadians are $200 away from failing to meet their monthly financial obligations. Many Canadians live in a precarious financial state, so it’s important to build an emergency fund to give yourself some wiggle room. When faced with an unforeseen expense, you will be ready for it. You won’t be sidetracked from your financial goals.
As a result, you and your family will feel safer and more protected from life’s uncertainties.
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Reason #2: Achieve Your Financial Goals
In order to achieve a better financial future, it is necessary to set goals, whether they are income goals, savings goals, or debt repayment goals. It will be easier to achieve your financial goals if you have an emergency fund to fall back on. Once you achieve one goal, it will create a chain reaction, making it easier to achieve subsequent goals.
Start small. Whether it’s increasing your income or paying off your debt, create an actionable plan and implement it each day.
For example, if you’re looking for a job in your field, send out a certain number of applications each day, take steps to polish your resume, and seek out expert advice. Most importantly, don’t get discouraged!
Conversely, if you’re paying off your debts, pick the snowball method or the avalanche method. The snowball method involves tackling your smaller debts first and working up to the largest debts. By contrast, the avalanche method takes the opposite route, starting by paying off your largest debt while making minimum payments on the smaller debts. Whichever method you pick, make sure you stick with it until you achieve your goal of fully repaying your debt.
You will have greater confidence in your ability to achieve financial goals when you have an emergency fund. The effect is as much psychological as it is mathematical.
Reason #3: Reduce Your Stress
Data shows that almost half (49%) of Canadians have lost sleep due to financial stress. Confronted by a lack of job security, low wages, and a high cost of living, many Canadians are finding it difficult to cope.
One way to reduce your financial stress is to build an emergency fund. Knowing that you have a financial cushion to fall back on will help you cope with today’s stressful and uncertain times. If you lack such a cushion, a single mishap could land you in trouble. With an emergency fund, a greater sense of safety and security is possible.
Sounds Great, but How Do I Build an Emergency Fund?
Baby steps are crucial. Set aside a portion of your income each month to put into your emergency fund. Even a small amount will add up over time, if you stick with it consistently. Eventually, you want to have at least three months’ expenses saved up. This will put you way ahead of most Canadians.
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Conclusion
Many Canadians are struggling with low wages and a high cost of living. As a consequence, many do not have an emergency fund and are vulnerable to sudden changes in their circumstances, such as a job loss or a medical emergency. It’s essential to start building your emergency fund today to help protect you and your family against unforeseen setbacks.
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