How to Build an Emergency Fund
A basic idea that could definitely hurt if you don't have one.
Quick note I am posting this article on a Sunday since I will be leaving tonight for a work trip. I’ll be back next week at the regular time 😄!
Two weeks ago we looked at the topic of saving money without feeling deprived. (see article) That is a perfect introduction into the first step of building an emergency fund … having money left over at the end of the month to save. Sounds overly simplistic and it may be, but, it is also truthful.
Few things give you more peace of mind than a solid emergency fund. It’s not flashy like investing stocks or crypto and it won’t make you rich overnight, but it will protect you from life’s curveballs—unexpected car repairs, surprise medical bills, or even sudden job loss. It is your safety net and you hope to never need it but if you do you are glad that you have it.
A friend of mine was renting a home about 10 years ago and unfortunately the home caught fire. Luckily no one was hurt but they lost the majority of their belongings. What is even more sad is that they did not have tenant or contents insurance which means they really did lose all of their stuff. Anytime I think of insurance, savings, safety nets and emergency funds I always think of him.
The Hows
How much do you need to save?
The general rule of thumb is 3 to 6 months of essential expenses. That means rent or mortgage, groceries, utilities, insurance, and transportation—basically, the things you can’t live without.
3 months may be enough if you’re single, healthy, and have a steady job.
6 months or more is smart if you have kids, own a home, or work in an industry prone to layoffs.
How do you get there?
The first step to building the emergency fund is to simply start. Think to yourself do you really need this coffee, second beer, video game etc. That mindset is crucial in the beginning especially before you know where your money goes.
The second step is to take a financial audit. Essentially look back at your bank accounts credit cards over at least the last 3 months and see where your money has went.
Step three is to take the audit and create a budget. Allowing yourself a certain amount of money for wants and also finding out just how much your necessities cost you. If your necessities are eating up all of your income you need to find ways to reduce them or increase your income. It sounds harsh but it is the truth. I wrote two articles at the start of the year outlining how to do this at the start of the year
The final step is to take the savings each month and allocate it appropriately. You should front load the emergency fund, but, I like to start investing a small amount as well to get into the habit. Just make sure you are using a no fee broker.
How to build the fund stress free?
- Automate it. Set up an automatic transfer on payday so you never “miss” the money.
- Start tiny, even $20 per week adds up to $1,040 in a year.
- Use windfalls wisely. Tax refunds, bonuses, or cash gifts can make a huge difference if you put the lions share into the fund.
- Cut one expense. Swap one restaurant meal per month for a homemade dinner—that’s $30–$50 straight into your emergency fund.
The trick is to make saving habitual, not painful.
Where to keep it?
An emergency fund should be:
- Accessible: You want quick access when you need it.
- Safe: This is not money to invest in the stock market.
- Separate: Keep it in its own account so you’re not tempted to spend it.
A high-yield savings account (HYSA) or a money market account are great options. They’re FDIC insured, liquid, and will earn a little interest while your money sits and waits for you.
As many of you will know I keep some of our emergency fund in my TFSA at the moment in CASH which is a HISA ETF. This does not comply with the third point of keep it separate. I trust myself but it is indeed tempting to dump it into the market at times. It would be best to remove this into a separate account and I may start to slowly do this over the course of 2026.
When and When Not to Tap Into the Fund
An emergency fund is for the unexpected and necessary. That means:
- Car breaks down → Yes
- Medical bill → Yes (luckily these are fairly rare here in Canada but can still happen in physio or medications)
- Sudden job loss → Absolutely this is one is arguably the number one reason for the fund
- Concert tickets or vacation deals → Not an emergency ( I hope that’s obvious )
Essentially drawing from it should feel like a last resort. If you do use it, make replenishing the account a top priority.
Summary
At the end of the day, an emergency fund isn’t just about money. It’s about reducing stress. Knowing you’ve got a cushion gives you confidence to make better decisions in other parts of your financial life, from investing to career moves.
Start small, be consistent, and before you know it, you’ll have a safety net that helps you sleep better at night. The habits you build through this process will allow you to invest for years to come!
Thank you for reading and I hope I gave you a few ideas for success.
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Cheers ☕