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The Basics of an Emergency Fund

The Basics of an Emergency Fund

Living without a financial safety net can threaten your financial well-being and can cause huge amounts of stress if an emergency occurs. Being prepared with an emergency fund gives you the confidence and financial support you need to tackle any of life’s unexpected events.

In this article, we cover what an emergency fund is, what it is used for, how much you should be saving, and where you should keep your money.

What is an Emergency Fund?

To put it simply, an emergency fund is money that you have put aside to be used for unexpected expenses. These expenses are typically unplanned financial emergencies that would not be covered by the money in your chequing account or expenses you would want to put on your credit card.

What is an Emergency Fund Used For?

An emergency fund is used for big (needed) expenses that were not anticipated – not a much-wanted last-minute vacation or shopping trip. These expenses include money to support yourself following job loss, medical emergencies, car or home repairs, or an unexpected trip to the veterinary clinic.

How Much Should You Save in your Emergency Fund?

The amount you should save in an emergency fund varies from person to person. A good rule of thumb is to save three to six months’ worth of living expenses. Many people recommend continuing to make contributions to your fund until you reach a year’s worth of living expenses.

To help you save for your emergency fund, it is important that you create a financial budget to ensure you are living within your means and saving your money appropriately.

Where Should You Keep Your Emergency Fund?

There are a few options for where you can save your emergency fund. One option is to have a portfolio of dividend-paying stocks with the income generated from the dividends withdrawn on a quarterly basis and kept with the bank in your savings account. Other options can be to open a high-interest savings account, store your money in a money market account, or buy a certificate of deposit.

When deciding where to keep your emergency fund, consider the following:

  • Keep your emergency fund in a separate account from that used for daily transactions.
  • Look for an account that generates interest on your savings.
  • Look for an account with low to no transaction fees.
  • Look for an account that does not impose withdrawal penalties.

Start Your Emergency Fund with Bloom Investment Counsel Today

Bloom can help establish and grow an emergency fund for you with a portfolio of dividend-paying stocks. The income generated from the dividends can be withdrawn on a quarterly/semi-annual basis and deposited into your savings account to be used solely for emergency purposes providing you with financial security while your investments continue to grow.

Established in 1985, Bloom Investment Counsel, Inc. is a Toronto-based independent, privately-owned boutique investment management firm with experience in managing more than $2.5B in assets over the years.

We provide actively managed, customized Canadian and U.S. dividend-paying portfolios for wealthy individuals, family offices, foundations, corporations, institutions, and trusts.

For over 25 years, we have specialized in one thing and strive to be the best at it—investing in income-generating investments, specifically dividend-paying stocks, which can help you generate income if needed, and growth from investing in the stock market.

This content is provided for general informational purposes only and does not constitute financial, investment, tax, legal, or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this content should consult with his or her financial partner or advisor.

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