Just How Much Emergency Fund is Enough?

How much emergency fund is enough?  An emergency fund is sometimes called a rainy day fund.  Rainy days are very common here in Vancouver.  We can all agree that an emergency fund is a good idea.  However, how much emergency fund is enough can often be a grey area in the personal finance space.

How Much Emergency Fund is Enough

The purpose of an emergency fund is to be able to have access to money quickly without having to take on debt.  Murphy’s Law happens when you least expect it and Murphy tends to pay a visit randomly.  Life happens.  You never know when you need money, if you get laid off from work unexpectedly, or if you need car repairs, or if your roof needs to be replaced.  Or even if you need to pay a $40,000 assessment on your condo that you purchased as a single female homebuyer.


Emergency Fund Examples

First, let’s review some examples whereby you would need access to an emergency fund:

  • Lose your job
  • You start maternity leave in Canada but there is the bridge between when you apply for your benefits and when you actually receive your benefits
  • You decide to take the 18 month maternity or parental leave and don’t have enough savings before your baby is born
  • You need a big house repair
  • Your car breaks down again and you need to take it to get repaired
  • Your car got totaled and you didn’t get car replacement insurance
  • The stock market tanks and you don’t have enough cash in your investment portfolio to buy more dividend stocks
  • Having to pay for insurance deductible for auto or home

You get the point, there are many more examples why you would need an emergency fund, the biggest of which is if you lose your job. 

You will need to look at the core day to day expenses you need to pay for, such as:

  • Shelter (your mortgage, maintenance fees, or rent)
  • Food (bare bones groceries and meals)
  • Utilities
  • Transportation (like gas for your car)
  • Health (e.g. extended benefits if you pay for this in Canada)

Emergency Savings Fund

Emergency funds are handy.  They save your bacon when you need it.  How much emergency savings is enough though?  Here are a few different ways to calculate how much emergency fund is enough.  There’s no right answer as personal finance is personal and what works for you may not work for another individual.  Where to stash your emergency fund, that’s an even greater question.

According to The Globe and Mail and a survey by Go Banking Rates, 23% of Americans making more than $150,000 a year are living paycheque to paycheque and have less than $1000 saved up for emergencies.

In addition, 33% had nothing saved up for retirement.


I personally think $1000 is too small for an emergency savings fund, but it’s better than $0, I would say.

Living Expenses Calculation

Most experts including those at The Balance recommend you calculate the amount of emergency fund you need by going with the cost of living expenses.  The Balance states at minimum, you would need three months of living expenses.  They state if you have children or other dependants, the emergency savings to cover living expenses should be even greater, which is six months of living expenses.

So, let’s say your rent, food, utilities, transportation etc (all the basic expenses) cost $3500 a month.

So a three month emergency fund would be $3500 x 3= $10,500.

A beefier six month emergency fund is $3500 x 6= $21,000.

The number may seem daunting, but if you automate your finances, and pay yourself first with each paycheque you get, you will get to this number in no time.

Here is a great emergency savings calculator (Canadian) that can help you calculate how much you need on a regular basis to save to get to where you are going.  If you start at $1000 emergency fund, and you save $1000 a month, you will get to your emergency savings goal in 1 year and 8 months.  It even breaks it down to the deductibles you need to pay for so you can figure out exactly how much of an emergency fund you need.

Emergency Fund Calculator
source: CCHWebsites


Salary Calculation

Forbes and Learnvest instead use the take-home-pay as a rule of thumb for calculating emergency fund.  They calculate it as 3 months of take home pay, or 6 months of take home pay.

So let’s say your take home pay was $3,500 a month.  Same as above.

So a three month emergency fund would be $3500 x 3= $10,500.

A beefier six month emergency fund is $3500 x 6= $21,000.

(Hopefully your take home pay is > your monthly expenses)

The HELOC No-Calculation

This is a bit controversial, but there are many people who would rather not put their money in a savings account earning minimal income.  In fact, there are some hard core investors who would rather not have too much cash on hand and invest maximally.  When they need cash I assume they will just liquidate their investments for their emergency fund access.  Here’s why Investopedia thinks emergency funds are a bad idea.

Although I say personal finance is personal, I would not feel comfortable doing this.  I did have a HELOC attached to my mortgage but actually never touched it.  It was reassuring to know that it was there should I have needed it.  It really depends on your level of risk that you are willing to take. When the market tanks (notice that I say when and not if) and I need cash to invest, it would be painful for me to have to sell everything and realize capital losses.

Personally, I think the best option of the three (even though there are no right or wrong answers) is the monthly expenses option, however, if you do your emergency fund as your take home pay option, it will be more comfortable (provided that your take home pay is greater than your monthly expenses!).

Where to Keep Your Emergency Fund

Now, for the fun part.  I personally keep my emergency fund in various high interest savings accounts.  I kind of am a savings account collector and hoarder.  There are numerous savings accounts available in Canada, and the higher the savings account rate, the better.

At the time of writing, for a small portion of my emergency savings, I am keeping it in a 3 month GIC earning 2.30% at EQ Bank (it earns slightly less interest compared to the high interest savings account).  Here is my review of EQ Bank if you’re interested in learning how to earn 2.30% on a 3 month GIC.  A 2.30% rate on a GIC is fantastic, and not having to lock it in for very long (3 months is reasonable) makes it even better.  It gives a little boost for your emergency savings, IMO, getting it to work slightly harder while it is sitting there, waiting for an emergency to be utilized.

Here are some other High Interest Savings Accounts in Canada and a chart and table comparison of them.

Cash is king, especially with an emergency fund.

What do you do with your emergency fund? 

Which do you do for your emergency fund savings (living expenses, gross salary, or plan to use debt)?

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18 thoughts on “Just How Much Emergency Fund is Enough?”

  1. My emergency fund is in a high interest savings account that covers about a year’s worth of living expenses. To me it’s the best place to stash it since it will collect interest and you can access to it easily.

  2. I always tried to have at least 6 months of all expenses aside as an emergency fund. This was not always possible of course, for example when my family has made major purchases, but I feel better when we do have 6 months of expenses saved 🙂

  3. We keep a year of money in CDs and cash and I’m considering using it to generate some income by letting it sit in checking accounts for new account bonuses this year. Might as well make it work a little harder for me than it can in low earning CDs. I also keep a cushion of cash that’s intended for deployment, whether it’s to cover big unexpected or expected expenses that don’t warrant breaking into our emergency money, or for investing through the year. I am doing my best to ignore the temptation to buy more ahead of schedule with the recent correction and stick to the plan.

    • @Revanche- That’s a good idea. I would love to take advantage of more chequing account offers but they require so much in terms of organizing bill payments and preauthorized deposits etc that I am too lazy. 1 year is fantastic, I think for a family the longer the better.

  4. I’m in the emergency plan versus emergency fund camp. I will admit this was a lot easier when we were mortgage free and our monthly expenses were much lower. That being said we do have a few thousand saved in a high interest savings account (yeah EQ Bank).

    For a long time we had a HELOC that we could tap into in case of an emergency. Now with our new home we don’t have a HELOC. What would we do in a true emergency? Probably put the expense on a credit card temporarily until we could liquid some of our other investments. This plan is not for everyone, but it works for us.

    • @Maria- How come you decided not to have a HELOC? I had a HELOC and never used it but it was nice to know it was there.

  5. I like 6 months. I keep $5,000 in cash which I top-up ASAP whenever I have to use some. 130% of the remainder is invested in a Wealthsimple TFSA with 30% stock allocation. I have never needed to sell stock to meet an emergency (yet) but I am fully prepared to do so if needed.


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