You may not get a gold medal for it, but you should actually feel good when you spend your emergency fund! Read why below.
What is an emergency fund?
If you do not have an emergency fund, you are not alone. Did you know that over a third of Canadians do not have an emergency fund to cover 3 months’ worth of expenses?
An emergency fund is also known as a rainy day fund, contingency fund or resiliency fund. It is different from the money you use for entertainment, vacations, education savings or other savings in these ways:
- It can be accessed anytime
- It is used for unexpected, urgent emergencies only
We previously discussed the different types of emergencies this fund is perfect for in our Emergency Savings webinar, but read on for how your fund should grow after an emergency.
Emergency savings are meant to be spent
Most of us think that if savings are put aside, it should always be growing, but that’s not true for an emergency fund. In a perfect world, savings would grow like this:
….but in reality, savings in an emergency fund usually look like this:
Why? Because when there is an urgent, unexpected expense, you can and will use what you’ve saved. The balance will then decrease, sometimes to zero, and that is okay. So you can feel good about using your emergency savings for a car repair, medical expense, or urgent veterinary visit. An emergency fund is meant to be spent in an emergency and you’re better off using those savings instead getting a high-interest loan like a payday loan or relying on credit. Now that is something to feel good about! And just like how they are meant to be spent, emergency funds are also meant to be replenished. So, at your next opportunity, start saving again for that next surprise expense.
Need help saving money for emergencies? Try a free automated saving app
Life can get busy. Cross one more thing off your to-do list by automating your savings each month. The right savings app can remember to save for you, on a regular basis. Once you set it up, you don’t have to think about it, and you don’t have to do anything. Easy!
Here at Momentum, we partner with the QUBER app. QUBER is a mobile app designed to help Canadians save money. What we like best about QUBER is, it’s free, it links to your current bank account, and we make it fun with our free Momentum Savings Challenge (where eligible Calgarians earn incentives just for saving). You can download it from the App Store, or Google Play.