Emergency Fund: why? How? When?

emergency-fundA lot of immigrants came to Canada without savings.

According to a BMO Wealth Management report, 19% of the immigrants that come to Canada have no savings at all. This makes me wonder: if it’s bad already to not have any savings in life, what to say about moving to a new country with no savings?

Let me ask you a simple question: Could you come up with $2000 if an emergency arrives? Let’s say if your car breaks (really bad) or if you lose your job or if your kid breaks a leg and need medical attention. Could you pay for that right now, TODAY?

Most people can’t. Most people don’t save for emergencies, and when emergencies come (and they WILL come, you can be sure about that) they have a disaster and not just an emergency.

In the US, a survey said that more than half of the Americans would not get to come up with $2000 in 30 days for an emergency. I don’t know what the numbers are for Canadians, but I don’t think it’s far from it.
I know you have a lot of excuses to not save money away for emergencies. And I’ll break the most common one here today with you.

But, Dan, I cannot save any money, my paycheck is all taken“. Are you sure? What if I tell you with absolute certitude that you can save more than what you save now? If you save ZERO dollars right now, it’s ridiculous to save more, right? Even $1 is more than $0. The same concept applies if you save $100 a month. You can save $110 or $150.

Think about this: if your employer comes up with a new deduction or if the government comes up with a new tax, what choice would you have? None! You would fit this new expense in your monthly spending and move on, right? If things are really tight for your family, you would look for another job or try to make more money. You would find a way! So find a way to start saving now!

First off, you you are waiting for the end of the month to see how much is left in your account to save, you are on the wrong path. It’s just too easy to spend money that is sitting there, isn’t it?

You know you have important bills you must pay every month. Rent, mortgage, cell phone, internet, cable. Every month you make sure there is money in your account to pay them, so why don’t you do the same with your Emergency Fund? This technique is called “Pay Yourself First”.

What I want you to do right now is go to your online banking and set up an automatic transfer from your checking account to a new savings account. It does not matter the value. Make it a number you feel comfortable with. Do not think too much about it. $10, $50, $200, it doesn’t matter. What matters is to GET STARTED. The best part? This money will not be taken from your account today, but at your next payday, so it does not hurt that bad. Leave that your future self deal with that, and I am sure your future self will thank your present self. This is different from procrastinating, you know.

If you already have an automatic savings transfer set up, I dare you to raise that value, even by $5 or $10.
This way, next payday you will have your Emergency Fund started. It may look small and even useless, but if you keep it up it may be very handy when the time comes. Try not to think too much about it, ok? Try not to think about this money, or else you will end up spending it right away.

When should you spend it, by the way? You will know the best time to use this Emergency Fund. If buying groceries next month is an emergency, go for it. If it’s to pay for kid’s clothes, you got it. It’s important that YOU define what an emergency for you and your family is.

The next step? Come back to this post 3 months from today.

Do you still believe you cannot save more? Tell me why. Let us know in the comments or drop me a line, I’ll love to talk to you about that.

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