Emergency Fund
One should always have an emergency fund to deal with catastrophic situations.
If you have some money available to help you through these catastrophic situations things will be lot less stressful. Building an emergency fund is very important for risk management. One should always have at least six month’s income on the side for bad times.
People usually have excuses for building an emergency fund. For example, some say how it is possible to give away 6 months of pay and others say it is a very hard thing to do and it is a mission impossible.
You need to make a list of all your essential expenses like mortgage, taxes, car payments, food, basic medical costs etc. This will provide you the minimum amount you need to get by. This can help you set a budget.
You may choose to open a TFSA account for this purpose. Consider setting up an automatic withdrawal each month. You may opt to start with as little as $25.00 each month and slowly increase it. You can consider increasing the contributions in the denominations of $25.00. For example you may start with $25.00 and then increase it to $50.00, $75.00 or $100.00 each pay period.
You can boost your emergency fund by contributing extra funds into it. For example you can deposit your tax refund in it. If you receive any bonuses from your work you can deposit that in your emergency fund also.
You may need to discipline yourself in order to save. For example instead of buying lunches from outside you can consider having homemade lunches. You may need to cut down some habits. For example going out with your friends after work and spend.
Review and revise your budget each quarter and see if you can cut down any unnecessary expenses. Stick to a plan and save each month. If you have initially decided on saving $25.00 month try increasing it and stick to this new amount. For example if you decide to increase it to $50.00 each month, look to increase to next level of $75.00
Setting up an emergency fund is a crucial part of financial planning that all of us need. Having no emergency fund can force you in a big debt.
Mansoor Suhail (Mani)
Accountant
MS TAX – BSBA – EA – ICIA – RA
1804 – 1360 York Mills Road
North York, ON, M3A 2A3
TAX for CANADA AND U.S.A
Web: www.theaccountingandtax.com
416 – 283 – 8774
