A Quarter of Canadians Can’t Cover an Unexpected $500
Covering an unexpected expense of $500 or more would be a hardship for one in four Canadians. That comes from the latest Canadian Social Survey — Quality of Life and Cost of Living report, an annual survey assessing the country’s financial well-being.
For many, inflation is the reason behind their financial issues. In 2022, Canada saw a record-breaking rise in the Consumer Price Index (CPI).
It’s hard to save as much as you would like when every good and service costs more. But having an emergency fund is an important safety net to help you handle unexpected expenses that are inevitable — things like car trouble, household repairs, or medical emergencies.
Why is an Emergency Fund Important?
No matter how careful you are, you will run into an unexpected expense eventually. Things break down and people get sick — these issues are part of being human. So are the bills that come with repairing things, paying for out-of-pocket prescriptions, and covering private health insurance deductibles.
An emergency fund helps you handle these unexpected expenses, even if you didn’t think to include them in your budget by name. By setting aside some money each month in savings, you are as good as preparing for these expenses.
How Much Should You Save in This Fund?
Above, we mentioned how you can build an emergency fund by setting aside some money each month. But how much is “some”? It depends on your situation. You can only contribute the amount you can afford.
A common rule of thumb is to save 20% of your take-home pay, split between your emergency and retirement funds. Eventually, you’ll want to save between three and six months of living expenses in total.
At this size, an emergency fund can help you with a variety of expenses and financial issues:
- Car repairs
- Home repairs
- Medical tests, therapies, and medications not covered by insurance
- Unemployment
- Illness or disability
Other Ways to Prepare for Emergencies in Your Lifetime
An emergency fund is one of the best ways to handle a minor unexpected expense. But it’s not the only way. Here are some alternative options when you’re first starting to save.
1. Personal Loans
If you’re just shy of what you need to cover an unexpected expense, borrowing money online might be an option. Installment loans are some of the most common types of loans in Canada. They join credit cards and lines of credit as popular backups to underfunded savings. You can dip into in a line of credit or take out an installment loan to cover your expense right away and pay it back over time.
2. Insurance
Having the right insurance can help you cover large-scale repairs to your home or vehicle. In the event of extreme weather events or accidents, you can rely on your coverage to pay the majority of repair costs.
3. Routine Maintenance
Keeping up with routine car and home maintenance can help you limit unexpected breakdowns. Your work keeps your property in good repair. More importantly, you’ll be able to spot minor issues before they escalate into large, costly repairs.
Bottom Line:
As a hard-working Canadian, covering an unexpected $500 can be challenging. But by supporting your emergency fund with personal loans, insurance, and regular upkeep, you can handle anything.