What is an emergency fund?

1. Regularly set aside a small portion of your income

The easiest way to start building an emergency fund is by regularly setting aside a portion of your income.

While this might seem daunting at first, planning and staying consistent will make it an easy process. These things take time, so don’t get discouraged.

The amount you’ll set aside differs from person to person. It depends on how much you’ll earn, your personal budget, and personal expenses. After all, everyone has a different financial situation.

You may also want to consider cutting or minimizing expenses, if possible (such as that daily coffee run or pausing a few subscriptions) and putting the money saved right into your emergency fund.

An excellent threshold is trying to save at least 10% of your monthly income for future use. A smaller percentage is also acceptable, but it will take longer to build.

Naturally, a higher percentage would build an emergency fund faster, but it’s important to take these steps one day at a time and make them work with you and your expenses.

2. Choose the right bank account

Money in an emergency fund should be accessible at a moment’s notice. Ideally, you wouldn’t want to keep your money in a chequing or investing account, as a chequing account does not earn interest and elevates the temptation to spend. In contrast, investing accounts are most suitable for long-term, big-picture saving goals like purchasing a home or retirement.

High-yield savings account with an interest rate that beats inflation is ideal for keeping an emergency fund. Your money remains liquid while earning some interest.

If you have a hard time saving, often finding yourself picking at your savings, you might want to consider opening an account with another bank. Many online banks do not charge monthly or annual fees and often issue great interest rates. They’re also usually insured and accessible through your mobile phone.