Why I Want a $10,000 Emergency Fund

January 8, 2014

Piggy Bank

Last month, Chelsea commented on my post about my savings goals for 2014 and asked a question I honestly can’t believe I’ve never answered before: Why $10,000 in an Emergency Fund?

The short answer is fairly simple: $10,000 is approximately six months’ worth of essential living expenses for me; that means no restaurant budget, no shopping budget, etc. – just the essentials that need to be paid in order to live and eat. Why six months? Is it lame if I say because that’s what personal finance experts suggest? Well, they do… so I’m listening.

To come up with the $10,000 answer, I simply took one of my regular monthly budgets and stripped out everything I wouldn’t need in the event that I lost my job. If I was unemployed, I’d cut out my restaurant budget, any shopping or entertainment, charitable donations and even savings. What I would end up with is a budget that looked like this:

emergency budget

So, technically I should save closer to $11,000… and if I ever reach $10,000, I’ll probably top it up. But an even $10,000 seemed like a good goal to start with. As I mentioned, I’m saving it in a TFSA with ING, which is only earning 1.40%, but because it’s cash I would want available in an emergency, I am not comfortable investing it in mutual funds or stocks. So, I’ll likely keep it there forever. Or, you know… until I need some of it. Which, I suppose, leads me to answering one last question: What constitutes as an emergency? 

In my eyes, basically anything that would require an immediate fix. For example, my cars’ 5-year warranty is almost up, so any breakdowns could require costly repairs. If I got a dog one day and it got sick, an unexpected visit to the animal hospital could add up quickly. These are just two examples of things I wouldn’t want to wait until I could save up the cash to deal with – the urgency then making it an emergency.

Of course, the possibility of losing my job and facing unemployment, or getting sick and needing to take time off, are the two biggest reasons I’m saving so much cash; either would be a true emergency – one I hope to never face. (*Knocks on all the wood*)

Do you have an Emergency Fund? How did you calculate the amount you wanted to save?

Flickr: bradipo

  • Dayle January 8, 2014 at 4:05 am


    I am still convinced we are the same person! Lol

    I have an emergency fund…mine is $10K…approx 6 months of essential expenses to not lose my house, keep my car running, and food in my belly. Pretty much the same as you!

    I just reached my $10K goal a couple months ago, and I also keep it in my ING TFSA :)

    I would consider the same sorts of things an emergency…accident/car accident, furnace breaking, unexpected time off work, etc etc.

    I really love the peace of mind!!

    Great post!

    • Cait Flanders January 9, 2014 at 8:17 pm

      I can’t wait to have this peace of mind you speak of, hehe. Thanks, Dayle!

  • Marg S January 8, 2014 at 4:50 am

    Hi Cait – I’ve read your blog for a couple of months but this is my first post. I wish I’d found it long ago. Before I get to my comment I just wanted to say thank you for bravely sharing your story and thanks for all the great info. I thought I was pretty solid with my financial info and knowledge but I’ve learned a lot from you.

    Ok – to this post. My goal for my emergency fund is $14K to $15K, which sounds like a lot but is 8 months worth of essential expenses for me. I wasn’t comfortable having only 6 months. I included my RRSP contribution in that because at my age it is an essential expense. I’m proud to say I will hit the lower end of my goal mid February.

    The biggest emergency I could think of for me would be unexpected time off work. I got rid of my car in 2012, it was old and parts were impossible to find. I decided to see if I could make public transit, taxis and renting a car if I had to work. It did and I haven’t looked back. I figured out that I could buy a bus pass, take the odd taxi and if I had to rent a car and still come out ahead (on average) of what I was spending on parking, gas and insurance.

    Thanks again for such a great blog.

    • Cait Flanders January 9, 2014 at 8:19 pm

      Hi Marg,

      Thank you so much for reading and taking the time to comment! And congrats on being so close to reaching your Emergency Fund goal! Any thoughts on what you’ll do with the extra cash each month, after you reach your goal?

      • Marg S January 10, 2014 at 4:50 am

        Being so close to the goal is both a relief and frustrating. LOL. A relief because it’s so close but I feel like a four year old on Christmas Eve. Is it time yet? Now? How bout now?

        And yes I have thought about it. I’ve been splitting what I save per month between RRSP contributions and my savings with the majority going to savings. I felt it was more important to get to that goal as soon as I could. I have about $500-$550 a month to save ($125.00 was going to RRSP the rest to savings). That will reverse April 1st (so I get the higher amount for the full RRSP tax year). I do plan to move $5500 of the EF to a TFSA with the company that holds my RRSP’s (so I can max out the 2014 contribution) but it will be in an absolute 0 risk investment.

        The rest? I’ll still continue to save it. I have lived with the budget I’m on for a long time. I’ll keep the budget and the extra savings will be for “planned spending”, say a trip back to Edmonton where I’m originally from or the new iPad. Some women love shoes. Me? I should not be allowed near the Apple Store. :o)

  • Trista January 8, 2014 at 5:21 am

    Hi Cait,

    I am in the same boat as you. I eventually want to have $10,000+ for an emergency fund. I need about $1900 a month which would equal around $11,412. Right now I’m shooting for $5000 this year which is almost three months and then the other $6500 next year. It’s a lofty goal with my current salary so I’ll likely be keeping my second job to help me reach it sooner. I will also be keeping my emergency fund in an ING TFSA. I’m really only getting started on it this month as I didn’t save for emergencies (aside from a $1000 slush fund that I would dip in to and replace) while I was paying down my debt.

    Once I’ve got the six months in place I will likely still increase it but may be only something small like $100 a month. But that is still two years away so I’m not going to focus too much on it right now.

    Emergencies for me would be job loss, extended sick leave, accident, and unexpected car repairs. I would of course work to replace the money as soon as possible after I dipped in to it. Eventually I will also have a planned spending account where I keep money for the little things like car repairs. But for now it’s easier to keep it all in the one pot until I reach my goal.

    It tends to work better for me when I focus on one goal instead of multiple ones.

    • Trista January 8, 2014 at 7:26 am

      I got the large piggy bank from Chapters for Christmas from my Dad. I am using it for the 52 week money challenge. I’ve got it printed off and I’m not doing it in order. As I find the money to put in I’m crossing off the corresponding weeks. I put in $60 a couple days ago so I crossed off week 8 and week 52. I’ve got 5 done already. Hoping to cross off 3 more tonight.

      I know the pig won’t give me interest but right now it’s much easier for me to save cash than money in the bank. Hoping this exercise helps. Once I have a large amount in the pig I’ll deposit it. Hopefully seeing the larger amount will keep me from dipping in.

      • Sara Hamil @ They Call it Gumption January 8, 2014 at 11:35 am

        I’m totally doing the 52 Week Money Challenge too. Don’t feel bad about the interest – it’s still a really good way to teach yourself better savings habits! Good luck :)

      • Cait Flanders January 9, 2014 at 8:21 pm

        I am so freaking jealous you got the big piggy bank! And what a fabulous idea, to go out of order of the challenge. Good luck with all of your savings goals, Trista. :)

  • L January 8, 2014 at 5:21 am

    I’m also working on an emergency fund, and $10,000 is my goal as well. I had to dip into it last month for an unexpected break repair to my car but, that’s what it is there for right?

    • Cait Flanders January 9, 2014 at 8:22 pm

      Yep. I had to dip into mine multiple times in 2013, unfortunately. But if I didn’t have even that small amount saved up, I definitely would’ve gone into debt again last year.

  • Heather January 8, 2014 at 5:24 am

    I’m like you – $10, 000 is 6 months of essential expenses too. In my case, the only emergency situation would be losing my job or having to take a long unpaid leave for some health reason. Unless those two situations happen, that money does not get touched! I’m at $6000 right now, and my plan is to up it after my debt is paid off in May. If I put all the debt money there after, I will achieve it by early fall, but I may give myself a bit more cash flow in the budget and take until December. We’ll see how things go! I’m just happy I have a fairly good pot of money in there now. I am so tempted to just pay off my loan with it, but saving $100 in interest isn’t worth the risk of not having an emergency fund. I love the peace of mind it brings – in between the end of school and starting to work, things got really tight with no emergency fund, and I never want to experience that again!!!

    • Cait Flanders January 9, 2014 at 8:24 pm

      That peace of mind is exactly what I’m after. Good luck with your goals this year, Heather!

  • E.M. January 8, 2014 at 6:03 am

    I think $10,000 sounds like a good amount to people, and I’m no different. I didn’t really calculate my expenses, but this is the number I feel comfortable with. It could probably last me eight months. I agree with your views on what constitutes as an emergency. Anything related to health, my pets or my car needs to be given immediate attention.

    • Cait Flanders January 9, 2014 at 8:24 pm

      Here, here! :)

  • Liquid January 8, 2014 at 6:19 am

    $10K sounds like a reasonable amount Cait :) The peace of mind you’ll get from that extra cushion in the bank will be a real win. I don’t have an emergency fund yet but I’m planning to start one in the future. A proper E.F. is like a solid insurance policy. It’s always good to have one just in case :0)

    • Cait Flanders January 9, 2014 at 8:24 pm

      Good analogy!

  • Tonya@Budget and the Beach January 8, 2014 at 6:26 am

    My goal is 15k for all the same reasons as you, but my rent is pretty high so I need to have the covered.

    • Cait Flanders January 9, 2014 at 8:26 pm

      In looking at my “Emergency Budget”, it’s a little sickening to see that 62% of it would just go towards rent. Darn us for not living in cheaper cities, lol.

  • Alicia January 8, 2014 at 6:27 am

    That must be a pretty popular number – it is mine as well. Mine includes minimum payments to my debt as well, which will go down and disappear over time. It’s currently around $5550, and won’t make it to five figures until I am done with debt repayment.

    I have a slightly different take on my Emergency Fund. I set aside money per month for pet care and car maintenance. If I did go over by a lot in those categories then I would dig into my EF, but for me, my Emergency Fund is really earmarked to replace a paycheque due to job loss, poor bookkeeping at work, or caring for a loved one.

    • Cait Flanders January 9, 2014 at 8:30 pm

      If I had a pet, I’d definitely set aside some money for it each month too. My car is still so new – still under warranty and with only 50K on it – so I haven’t had to think about maintenance much yet. But I might set aside money for it each month starting in 2015.

  • Amanda C January 8, 2014 at 7:01 am

    I don’t have a specific Emergency Fund, but I do have a goal of getting my TFSA (which is my only savings account) to $10.000 this year. I’ve used this fund in the past as an “emergency fund” when I was off work all summer. But next March I’ll need $6500 to buy out my car and I hope to pay it outright (from this account) rather than refinance the remainder of the loan.

    There’s definitely something more attractive about having a 5-digit savings account than a 4-digit one! Maybe that’s why $10,000 seems to be the magic number?

    • Cait Flanders January 9, 2014 at 8:30 pm

      Maybe! I can see the logic in that.

  • Tara @ Streets Ahead Living January 8, 2014 at 7:16 am

    Does Canada have unemployment insurance the same way we have here in the US? It’s different between states but in NY state, my husband got about $350 after taxes a week, so roughly $1,400 a month. He was out of a job for three months so that was actually enough to cover all of his half of expenses and we lived really cheaply during that time, going bare bones on groceries. I suppose it’s best to not count unemployment in your emergency savings factoring because in a worst case scenario, the savings would help extend the unemployment.

    We try to save for three months but would like to do 6 months after we’re done with my loan payoff.

    • Cait Flanders January 9, 2014 at 8:32 pm

      We do, yes, but you can only collect for a certain number of weeks, and it takes a few weeks to get your first cheque. Like you said, I wouldn’t want to rely on that.

  • Jeff Potter January 8, 2014 at 7:22 am

    So in summary you want an emergency fund for Liquidity and Security. I would add that to your post because these are two important principles of personal finance.

    I have also heard that people who have an emergency fund are better investors because the security they have from their emergency fund helps them handle market risk. They are not as scared when the stock market changes.

    • Cait Flanders January 9, 2014 at 8:34 pm

      Interesting. I’m certainly not ready to jump into the investing boat yet, but I can see why investors with extra cash set aside for emergencies would feel comfortable with added risk.

  • Rebecca @ Stapler Confessions January 8, 2014 at 7:27 am

    We have a $17,000 emergency fund because I’m currently unemployed and we’re scraping by each month. We want to have a hefty cushion, for the unexpected.

    $9500 of that is in a cash Roth IRA, as our 2012 contribution. We can remove it without penalty, but haven’t lost our chance to make our 2012 contribution. I plan to move it to our Vanguard index fund by the end of the month, though, so it’s growing. We’re not worried about losing it because we have $40k more in our Roth — so we do have access to emergency cash.

    I’m also hoping to put the remaining $7500 into our Roth IRAs, so we don’t miss the opportunity to make our 2013 IRA contributions. It’s still there and accessible, but growing tax-free in the even that we never need to access it for an emergency, which is the ideal situation, right?

    • Cait Flanders January 9, 2014 at 8:34 pm

      Sounds ideal to me!

  • Leigh January 8, 2014 at 8:21 am

    I used to have $20,000 as an emergency fund. I took the amount of my paycheck x 6 months so I knew I would have at least half a year to look for a job (but as mentioned above likely more with EI, and by cutting expenses like savings, entertainment, …). I also had an additional savings account with $10,000 and another where I would save for my yearly expenses (contact lenses, car insurance and taxes). That was in 2009-2012.
    I recently found your blog now as I might be similar to where you used to be. An incident occurred which left me without a job, needing to move cities, and high legal fees. Luckily I had my savings but even then I’m left $25,000 of high interest credit debt, and my current back account balance is -$95. Thank you for the inspiration. I hate having all this debt as it doesn’t feel like me, but knowing you paid off a similar amount in two years gives me hope.

    • Dayle January 8, 2014 at 9:23 am

      This is interesting, I never thought of doing the EF based on x number of months of pay cheques, but this is a good idea… if I saved up 6 months pay (significantly more than 6 months expenses) then it is a much larger cushion, and in the event of unemployement would 1. last a lot longer, or 2. still allow for savings (or fun) while off work. I like it!

    • Cait Flanders January 9, 2014 at 8:40 pm

      Like Dayle said, I also like the idea of saving X number of paycheques. Unfortunately, that would more than double my savings goal… and I just can’t even imagine setting aside that amount of cash. I guess we’ll see what I can accomplish this year, and what I move onto next.

      I’m sorry for the hardship you’ve gone through Leigh, but am happy to hear my story gives you some hope. If you ever want to talk, don’t hesitate to email me. :)

  • kat. January 8, 2014 at 8:22 am

    THIS POST. <3.
    we have started an emergency fund–we're 1/5 of the way to one year's expenses, which, comparatively, seems like a lot but i have two reasons why:
    1) we still have student loan debt (which we're working on eliminating) to the tune of $75k–so we would want to be able to make those payments (about $800/month) during a season of un- or underemployment and
    2) nick (husband) is a contract engineer–which means he's not salaried and his position can be eliminated at any time–he makes probably 85% of our income so i would like to have a year of expenses (rent, utilities, loan payments, gas for the cars, food for the people) at hand.
    we'll hopefully be 4/5 of the way there at the end of this year–i'm also hoping to eliminate the two smallest student loans in the next 6 months, which will lower our debt burden by like $12K!

    • Cait Flanders January 10, 2014 at 6:42 am

      Those sound like ambitious and exciting goals, Kat! I can only imagine how good it’ll feel for you guys to have a year’s worth of expenses saved up. Good luck!

  • Sara Hamil @ They Call it Gumption January 8, 2014 at 8:36 am

    Ugh. This post makes me feel uncomfortable just because it forces me to face a pretty pathetic reality: I don’t have an emergency fund.

    I’m finally getting my savings in order and having some money in the bank makes me feel a lot better but I haven’t taken the time to crunch the numbers about how much I’d actually need because it honestly kind of scares me a bit… Sad, eh?

    To me an emergency would be losing my job (and possibly getting sick if it wasn’t covered by my critical illness plan). Other things like my car or pets’ vet needs I try to save for separately. This is mostly because I feel the need to really compartmentalize my savings.

    • Cait Flanders January 10, 2014 at 6:43 am

      Truth: Posts about Emergency Funds used to make me feel uncomfortable for the exact same reason. But that’s because my gut feeling told me I would probably need it one day… and I already have.

  • Michelle's Finance Journal January 8, 2014 at 9:16 am

    I only have a starter emergency fund of $2000 right now. I’ll increase it by just a little until our student loans are paid off. But eventually, I want a fully funded emergency fund of around $18,000.00. That’s way way later though.

    • Cait Flanders January 10, 2014 at 6:45 am

      Debt payoff was always my #1 priority too, but it’s good you have at least a little cushion of savings started. I didn’t have any savings during most of my debt repayment journey… and that was freaking scary.

  • Dawn January 8, 2014 at 10:35 am

    I never have had an emergency fund – but you (and Gail) have inspired me to start one – $450 in it so far! – I don’t plan on having one as large as you – but I think that having $5000 in available funds is a good idea for me.

    • Cait Flanders January 10, 2014 at 6:45 am

      Woo hoo! Way to go, Dawn :)

  • Rob January 8, 2014 at 11:10 am

    Cait, I’ve always considered my emergency fund to be a resource to have access to quick cash, with minimal hassle, should ever the need arise in times of (well) an emergency. Over the years we’ve paid off all long term debts, including car and mortgage, and invested significant amounts in registered and non-registered funds as well as kept an adequate level of “operating cash” for day-to-day spending. So with all that said, rather than further tie up extra cash (in easy to access but low interest generating investments) to use as an emergency fund, long ago I decided to instead set up and have access to an unsecured $50K Line of Credit account. I figured that this would be the most efficient method and, due to low interest rates, would not entail much overhead expense. So far, over the years, I’ve never needed to make use of it but it’s always comfortable to know that it’s there, should disaster strike.

    • Cait Flanders January 10, 2014 at 6:52 am

      I know lots of people who do the same, but I’m just not comfortable with that. If I was out of work for a few months, and living on credit during that time, I’d probably feel even more stressed that I was digging myself into debt all over again. But again, I usually just suck at having available credit… (had a $5,000 line of credit years ago, maxed it out).

      • Rob January 10, 2014 at 3:00 pm

        Yes Cait, but please re-read my comment carefully. I started the sentence with my line of credit suggestion with the words “So with all that said”. To better clarify, I would never start off an emergency fund using a line of credit without “first” having significant funds in other investments – such as TFSAs, RRSPs, etc.

        However, if over time you do have other such holdings then why tie up cash in an emergency account that earns very little (and in fact, as experts point out, is really losing purchasing power) ? In that case, if out of work for a time I would use my line of credit and pay the low interest rate cost to do so. Then if unemployment stretched “unduly long” only then would I dip into my higher earning TFSA / RRSP accounts and use some of it to pay off my line of credit, if required. As I said earlier, however, over several years I’ve never once had to touch my line of credit for emergency funding.

        • Mike January 12, 2014 at 2:02 am

          My plan is I have some money saved in Preferred Shares of Royal Bank. They pay a dividend of about 5%, are fairly liquid and will never drop below $25 per share (unless Canada’s largest bank somehow goes bankrupt… then we have bigger problems that my emergency fund).

          If there is an emergency, I will use my line of credit (which I keep at a balance of $0 religiously) and sell the shares to release the “emergency money”. I would feel bad living off of a line of credit in an emergency situation, but I feel almost as bad having the bank pay me 1% to hold my money and loan it to other people for up to 10x that amount. So with this method, I can feel good about both situations.

      • Noel D'Souza January 12, 2014 at 11:23 am

        That last point is HUGELY important point Cait. One should not open a new source of credit to address a debt situation until one has addressed the root problem that caused the debt in the first place. Doing so will only lead to more debt and bigger problems!

  • Michelle January 8, 2014 at 11:35 am

    We definitely have an emergency fund. We have around 1 full year of expenses in it. That is a lot of money, but it is because I have my own business now. Our emergency fund also covers any house repairs for us as well.

    • Cait Flanders January 10, 2014 at 6:53 am

      That’s amazing, Michelle! Something to aspire to. :)

  • Carolin January 8, 2014 at 11:56 am

    Awesome post. My hubby and I do the same thing. We put money aside for various things, vehicle maintenance, insurance,etc. and have made a concrete plan of how we would use the money in the event of a job loss or illness. After a while, putting the cash aside felt easier. We just treat it as another bill!

    • Cait Flanders January 10, 2014 at 6:55 am

      Exactly! Savings is a lot like debt repayment for me, in the way I look at it on payday. I see how much was deposited, set aside half my rent, pay any bills and then put a huge chunk of cash into savings. Whatever’s leftover is for food, gas and fun. Done and done :)

  • Kris January 8, 2014 at 12:36 pm

    Uhh … am I the only one who does NOT cut spending in event of unemployment? I mean it’s hard enough to go through a rough patch, why make it feel even worse, just when you need to be at your best for interviews and such? Then again, I am in IT, and while I’ve had a few periods of unemployment between contracts over the past few years, they are usually less than a month long and I am used to them. I am only aiming for $2500-ish until I finally pay off my student loans, then $10K (4 months of full spending including somewhat high rent)

    • Cait Flanders January 10, 2014 at 6:56 am

      Nope! I used to think I’d keep fun money in mine – and maybe I’ll top it up one day – but $10K is my bare minimum, and I just wanted to explain what essential living expenses were to those who don’t have Emergency Funds. :)

  • Debt BLAG January 8, 2014 at 1:21 pm

    That sounds about right. I think a good round number is good to aim for because it’s obvious when you’re below that amount and when you’re above that amount.

    It’s also good that you put some thought into it…For me, the size also depended on the likelihood of losing my job, the lifestyle changes I’d be willing to make in an emergency, and the interest rate of other opportunities/obligations (in my case, debt). That said, for the great majority of people (that is, those who don’t blog about personal finance), this totally goes with my mantra of don’t worry about getting fancy; just get started :)

    • Cait Flanders January 10, 2014 at 6:56 am

      Great advice!

  • Prue January 8, 2014 at 3:06 pm

    Hi Cait I also would love an emergency fund of $10000 and this is my goal for I don’t believe in using credit cards, I’m happy that you mentioned that your not in to investing I’m the same like my money in a safe bank account only , I’m a huge Dave Ramsey fan and debt free all the way but can’t get my head around mutual funds and other investments to much risk . I read your story’s all the time and love all you have to say thanks Prue

    • Cait Flanders January 10, 2014 at 6:59 am

      Thank you so much, Prue! I will admit, I do have my retirement savings in mutual funds… but an Emergency Fund is cash I could want at any given moment, so I don’t plan on keeping it anywhere than in a savings account. Good luck with your goals this year!

  • My Own Advisor January 8, 2014 at 4:01 pm

    I’m with you Cait:

    We’re at $5,100 and hopefully by year end, we’ll be there.

    Need to max out TFSAs first :)


    • Cait Flanders January 10, 2014 at 6:59 am

      Amazing! I’ll race you to the finish line ;)

  • Kali @ CommonSenseMillennial January 8, 2014 at 6:48 pm

    Great post, Cait! I think it’s important for everyone to ask “why?” if they have a certain number in their head that they want to save in an e-fund. The general rule of thumb is 3-6 months, but everyone’s situation is different! We have an emergency fund, but it’s on the lower side. Might have to do my own post as to how we determined our amount! ;)

    • Cait Flanders January 10, 2014 at 6:59 am

      Do it, do it! :)

  • AshleyD January 9, 2014 at 9:21 am

    I currently do not have a goal amount for my emergency fund. We are focused on our financial goal of the year, which is to pay of my truck. (19k to go)

    However every month $100 dollars gets deposited into my ING TFSA for the EF.

    The fund would be used for any type of extreme emergency, especially if something happens to our family who all live out of province or country. That will get expensive fast.
    Car repairs will be coming out of another account since last month the boyfriends vehicle had some expensive repairs and also a flat tire that are coming out of normal savings.

    I am lucky that through work I have an excellent short term and long term disability insurance.

    We also started depositing $50/month into an EF in the boyfriends name since if something happened to me, he would not have access to my account.

    Currently $2,550 in EF.

    • Cait Flanders January 10, 2014 at 7:01 am

      Sounds like you guys are on top of everything, Ashley! That’s so awesome to hear :) Good luck paying off your truck this year!

  • Noel D'Souza January 9, 2014 at 11:23 am

    Hi Cait,

    Great post! Everyone needs an emergency fund, and how big it should be depends on your particular situation.

    – How much are your monthly (or annual) financial obligations, and how much control do you have to adjust them?
    – What other resources do you have that you could call on in an emergency?
    – How many other people are financially dependent on you, and what are their needs?
    – In case of unemployment, how quickly can you reasonably expect to find new employment that would pay you a similar salary?

    And so on…

    One small point: these days with the very low interest rates, I’m not a big fan of putting my emergency fund in a TFSA, because the amount of income sheltered is very low. I’m ok with keeping my emergency fund non-registered and paying any tax on the interest income (which on $10K is about $140 of income, or about $65 of tax at the highest tax rate), while sheltering higher income investments like bonds or dividend paying stocks. Of course, you should also keep in mind what is the purpose of any investment and when you’ll need the money back before deciding what to invest in and where to hold it.

    But that’s just details. (I’m a Money Coach/Financial Planner nerd!) The big thing is: GET AN EMERGENCY FUND ASAP and keep it well-funded!

    • Cait Flanders January 10, 2014 at 7:04 am

      I like your second question best, Noel: What other resources do you have that you could call on in an emergency? My current answer would be… my credit card, and potentially a short-term loan from the bank of Mom and Dad, haha. So… ALL DEBT! No, thanks!

    • Mike January 12, 2014 at 2:06 am

      Quick note to Noel: If you’re in Canada, Canadian dividend stocks are often better kept outside of the TFSA as well. We get a great tax break on most Canadian dividends since the companies are already taxed on them. Bonds for sure, or anything that pays a decent amount of interest, which is unfortunately not a lot these days.

      • Noel D'Souza January 12, 2014 at 11:19 am

        Hi Mike,

        That’s a good point, and the federal and provincial dividend tax credits are nice when one has no choice but to hold investments in an account that isn’t tax sheltered.

        My comment was in context of this discussion (i.e. the practice of holding emergency cash in a TFSA), noting that the tax sheltering benefits of a TFSA can be used to greater advantage with higher yielding investments (that are NOT appropriate for an emergency fund) while the cash emergency fund can remain in a regular taxable account.

  • K January 9, 2014 at 6:26 pm

    My husband and I have about 4 months of essentials in TSFAs right now. We are going for a years worth at least (the extra we may decide to roll into retirement). We also have about 2 years worth of life in my “retirement fund” as like you, I am self employed (my husband has a great job with a great pension). While I don’t plan on touching this until I retire, I sleep better knowing if the worst happened we would be ok.

    It is amazing to me how many people I know who don’t have emergency funds or don’t have pensions or plans for them. When my husband and I started out, we didn’t either (mind you we were students and didn’t have money). At first it felt a bit like we were depriving ourself when we were investing our money. But now, we have the satisfaction of watching it grow. My husband has become so interested in it, he checks the investments every few days. [I look at them quarterly].

    Good luck saving your $10 000 and make sure to celebrate the accomplishments as you go!

    • Cait Flanders January 10, 2014 at 7:10 am

      I can honestly say that I didn’t care much about this Emergency Fund until last summer. All I kept thinking about was that my car accident could’ve been SO much worse. If she’d hit me half a second sooner, she would’ve hit my driver’s side front door and I could’ve been in much worse shape. Then what would I have done? Sure, it wasn’t my fault… but it can take years to close a claim and get a settlement. What would I have done in the meantime? I would’ve been screwed. That’s when my Emergency Fund became top priority.

      Great idea to celebrate the milestones, K. I’ll be able to celebrate the quarter-way mark next week!

  • Anne @ Unique Gifter January 10, 2014 at 7:05 am

    I think that you are in a position where it makes sense to have an emergency fund moreso than it does for me. In my case, we would both have to lose our jobs at the same time (slightly possible, we both work for the same large corportion), as we can easily live on the lower salary. If absolutely necessary, we are almost at a point where we can live on two min wage jobs again. We both also have short term and long term disability through work, plus assets we could liquidate if need be, and access to a boatload of credit, plus could turn to our families if necessary.
    As a single person, and based on your previous posts, not having extensive benefits or disability, the scenario is a lot different and makes having an emergency fund/a robust one make a lot more sense. Not having debt anymore also means that you are in a much more secure position, yay!

    • Cait Flanders January 10, 2014 at 7:15 am

      Yes, living alone (and in an expensive city) is obviously a contributing factor for the pressure I feel to build up some savings. Right now, my only backup is my credit card… and I could borrow from family, too. Either way, that’s debt that I wouldn’t want to take on – especially since being debt-free still feels so new to me.

  • Mo' Money Mo' Houses January 11, 2014 at 12:12 pm

    That’s the same number I’ve got for an emergency fund and it sure came in handy this summer I tell ya!

  • Dave January 14, 2014 at 9:01 am

    We have decided to start with a $4,000 EF as that will cover 3 months’ of mortgage payments. If one of us loses our job we can cover all our other monthly expenses with the other salary. As mentioned by someone else, we both have disability benefits too. We set aside money each month for medical bills, car servicing, etc so we shouldn’t need to dip in to the EF for those.

    One big thing that I didn’t see mentioned by anyone is that we’ve split up our retirement savings into both RSPs and TFSAs. The mutual fund TFSAs are far easier to pull money from than RSPs (and no tax hit, too). I’m glad ING makes it so easy.

  • Mike January 20, 2014 at 11:45 pm

    Today’s Greater Fool blog post deals with Emergency Funds. http://www.greaterfool.ca/2014/01/20/oh-sh/

    The one assumption Garth makes is that you can handle leaving a line of credit EMPTY. If you can do that, his advice is golden. Pop your money in a self-directed TFSA with bank preferred shares and your “emergency fund” starts earning four times as much. Sell the shares, 3 business days later you have the money to pay off your line of credit.

    I wish he was a bit nicer about how he says it. I guess that’s the audience he’s writing for!

  • Chelsea January 26, 2014 at 8:59 pm

    Cait! Oh my gosh – you wrote a post to answer my question! Sorry, I’m so late in responding but a huge thank you for not only answering my question, but for the shout out!

    This$10,000 amount totally makes sense when you break it down to an essentials only budget and multiple by the amount of months you feel you would need to tide you over in an emergency. I’m definitely going to look at this for myself as up until now I’ve kinda just been throwing money into an emergency savings fun with no real amount in mind.

    I agree with some of the other commenters in that it’s hard to decide what constitutes an emergency. I think I’m the kind of person that would need to have my emergency fund categorized for certain types of emergencies i.e. loss of job, car breakdown, family emergency etc. otherwise I would feel super stressed out if I used most of a generic emergency fund for a family emergency only to lose my job a month later with no back up plan. Does that make sense?

    Anyway, thanks again for posting!

  • michael February 9, 2014 at 5:45 am

    Having 10k in my Emergency Fund is my comfort zone. Though saving money should never NOT be BILL to pay each paycheck. My saving money is also on a daily basis. I round up to the next dollar with each purchase on my Debit Card thru my banks program that does this automatically. I carefully balance my Checking Account Thursday & Sunday night. The Thursday night balance avoids any issues before payday and allows me to set up my bill for Savings which is due each paycheck. The Sunday balance makes sure nothing is out of order for the week ahead. I keep a Check Register with me to keep a record of purchases. I am debt free so my bills are few. My goal to save each month is 18% of income including my 401k deduction. Interesting that rounding up to the next dollar really makes your Savings grow every day which helps offset low interest rates. Yes, it is your money being rounded up but it’s money that likely would not be deposited in to your Savings account otherwise.