Are you prepared for a financial setback?
A recent bank survey1 suggests that about half of all Canadian homeowners don’t have enough money set aside to deal with a financial emergency — and that one-quarter of those surveyed had less than $1,000 in reserve.
How much is enough?
The general rule of thumb is to keep enough cash on hand to cover three to six months of living expenses — groceries, the rent or mortgage, utilities, phone, transportation, and other necessities.
The amount that you should be saving will depend on your personal circumstances. If you are single, have a secure job, and your skills are in high demand, you can probably get by with three months in reserve. If you have dependents or your income fluctuates because you work on commission or are self-employed, you may want to build a larger emergency fund.
Where to keep it
You’ll want the money you put away for financial setbacks to be completely secure and easily accessible. Money market funds, cashable Guaranteed Investment Certificates (GICs), and high-interest savings accounts are all good options.
1 Manulife Bank of Canada, Debt, dollars and decisions: Three generations of homeowners talk about debt and money management, November 2016.