Emergency fund is essential

Money set aside in an emergency fund makes it possible to handle unexpected expenses.

It allows you to have your finances under control, avoid credit card advances or payday loans and enjoy peace of mind.

Emergency money needs to be easily available and used for unexpected situations such as major car repair, leak in your roof, job layoff or health issues that prevent you from working.

Unexpected expenses should not be confused with normal or discretionary expenses such as new winter tires, a trip to Mexico or new clothes for your job.

Money in an emergency fund needs to be safe and accessed quickly.

The account should be separate from your regular account for day-to-day transactions.

Normally, you pay no or low transaction fees, you can make withdrawals with no penalties and you earn interest on the money you save.

High-interest savings accounts work well.

A separate account is especially important so that you are not tempted to dip into it.

Start by saving a realistic amount.

Figure out how much you can put aside every week or every payday, whether it is $50 or $5.

The important thing is you start right now.

Another option is to use a percentage of each paycheque

Don’t be discouraged if it takes months or years to reach your desired amount.

Saving on a regular basis is mportant.

If you save $20 per week, at the end of one year, you will have $1,040, plus interest earned.

In general, it is recommended to have the equivalent of three to six months of your regular expenses.

Decide what amount is best for your family and your current situation.

Make saving easy.

Every day, drop loose change into a jar when you get home.

When it fills up, deposit into your emergency account.

Create a saving reminder on your phone.

Highlight your saving dates on a calendar or put sticky notes on your fridge.

Start your emergency fund with a friend and be accountable to each other.

If you are having a difficult time finding $20 from each pay cheque, review where you spend money. See where you could trim a bit. Invite friends for potluck dinners, buy fresh food at the farmers market and cook meals at home, buy a coffee mug and make your own brew to go.

Set up an automatic transfer, preferably on your payday, from your regular bank account to your emergency fund.

Take advantage of extra times when you can give a boost to your emergency fund.

Deposit additional money into your fund whenever possible.

Money can come from a raise, tax refund, when you sell unused items, receive money as a gift or from a bonus at work.

When you finish paying off a student or car loan, take those payments and add it to your emergency fund.

At home, do you have a fire extinguisher? Ideally, you will never need it. But if you actually do need it, you’ll be glad it’s there.

The same goes with an emergency fund.

If your basement floods in a freak rainstorm or if you break your leg and can’t work, your emergency fund will be a life saver. Emergencies can be small. Instead of putting the repair on your credit card, you can use the money from your fund.

Other emergencies are big, like a job loss or an accident or illness.

These may take all your resources over a few months. What is an emergency? It is something that affects your health or ability to earn an income.

Once you have reached your target for emergency savings, you will be on track to be financially fit.

Lisa Jaffary is a life insurance agent and financial adviser with Points West Insurance Services in Kelowna. Reach her at lisa@pointswest.ca.