Saving Money for Your Emergency Fund

For newcomers, it’s not uncommon to face an uncertain financial situation in your first few years. An emergency fund can help you meet unexpected costs, manage expenses while searching for employment, or stay afloat if you face a job loss. Unexpected expenses can arise at any time, anywhere to anyone. Those who are prepared will walk out without bearing too much harm to their financial health. A good way to make sure you can survive a financial crisis is to save money for an emergency fund. This article covers the different types of emergency funds and how you can save money for each fund. 

What is an emergency fund?

An emergency fund is a pool of cash that is set aside to be used in the case of an emergency. It should be stored completely away from your checking/saving accounts to ensure that you are not tempted to use it for daily expenses.

The purpose of an emergency fund is to keep you financially secure. When an unexpected expense arrives or you lose your job, this fund will help you cover expenses. Your fund could be used for emergencies such as:

1. Urgent medical, dental, or vet bills
2. Critical home repairs (i.e. a leaky roof)
3. Replacements for an essential major appliance (i.e. refrigerator or stove).

That is why it is important to have at least three to six months of living expenses in your emergency fund. This type of fund is called a traditional emergency fund. However, it is not the only type of emergency fund that will help you.

Different types of emergency funds

Emergency funds are a very important asset to have because they can help you get through a financial crisis without bringing much harm to your financial health. Even so, a traditional emergency fund can take years of saving money to build. Fortunately, there are many types of emergency funds, some of which are easier to save money for. Let’s take a look at three different types of funds:

1. A traditional emergency fund

2. Stash of Cash (having cash on hand)

3. Passive income.

Traditional emergency fund

A traditional emergency fund is the biggest fund on this list. Because of this, it can take years to save up money to build a traditional emergency fund. Generally, a traditional emergency fund should cover three to six months of your income. This means that if you lose your job, you will have enough money in your emergency fund to pay all the bills for several months. 

A traditional emergency fund can also be used for things such as health emergencies, auto and home repairs, and any essential need that requires a large amount of money immediately. 

Stash of cash

A stash of cash isn’t a big emergency fund and it is easy to save up money for one. This type of emergency fund can come in handy during a natural disaster or a power outage. Basically, you need cash in any situation when you can’t withdraw money from an ATM. Your stash of cash could be anywhere between $500 to $1500. It should be enough to pay your expenses for a week when an ATM is inaccessible. 

The biggest concern about keeping money at home is safety. Some argue that it is unsafe to have that much money in your home. This challenge can be overcome by hiding that money in a place that is easily accessible, but hard to find. Just make sure it is nothing too obvious like a money pouch or a wallet. 

Most burglaries happen very quickly so hiding your stash of cash in a good place is enough to keep your money hidden. If you are still concerned about safety, you can buy a money safe or locker to hide your money.

Passive income

This third type of emergency fund isn’t even a fund at all. However, during a financial crisis, passive income can prove to be very beneficial. This strategy is also used by countries to avoid a nationwide financial crisis. The main idea here is to diversify your income. Here is how it works:

Most of us have one job that we rely on to pay all of our expenses. But what if you lost that job? How will you pay the bills? To avoid this, you can diversify your income. Simply put, you should find other ways to make money so that you will still have a flow of income that you can rely on to pay the bills if you lose your main job.

You can make passive income in many ways. Some common ways to make passive income are:

1. Buying and selling used items on sites like Kijiji or Facebook Marketplace
2. Fixing broken items and then reselling them
3. Freelancing
4. Starting a dropshipping store (e-commerce)
5. Creating a course
6. Creating a blog.

These are just a few ways to make passive income. There are countless other ways you can make extra money. You can also be a little creative and think of your own way to make money on the side. Overall, your objective should be to diversify your income source so that you can rely on other sources of income during a financial crisis.

Even when there is no emergency, passive income will help you save for your emergency fund and overall, have a higher household income. This will not only help you be financially secure but it will also help you grow financially.

WRITTEN BY

Zain Usmani

Writer, Prepare for Canada

My name is Zain Usmani and I am a freelance content writer who currently resides in Mississauga, Ontario. I immigrated from Pakistan to Canada 5 years ago and have lived in many cities ever since. I have lived in Calgary AB, Edmonton AB, Regina SK, London ON, and Mississauga ON, while visiting over 40 Canadian cities and towns. I have a great passion for writing and I love helping people through it.

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