See Easy Guide to Building an Emergency Fund and Stay More Comfortable in Life

Life is full of surprises, and in the blink of an eye, anything can happen, even if it’s not a good thing.

Health issues, home emergencies, and immediate shopping needs can quickly drain your finances. 

And worse, when you don’t have the money to cover those emergencies, the situation can become even more serious. 

That’s why one of the most important things in life is having an emergency fund to help you in the toughest times. 

However, building an emergency fund isn’t the easiest task, especially for those who are financially stretched. 

To help, we’ve gathered some tips for building an emergency fund without straining your finances and making it more manageable in your day-to-day life.

Emergency Fund vs. Investment Fund 

It’s important to distinguish between an emergency fund and an investment fund, as they shouldn’t be viewed as the same thing. 

An investment fund is money used specifically to build your income, with the direct aim of generating dividends. This also means it carries more risk and requires more careful planning. 

On the other hand, an emergency fund has no such obligations. It serves as money you can access at any time when needed. 

The emergency fund should be more risk-averse since it’s for use when you need it. 

For many people, the money saved might serve both purposes, but it’s not the most recommended approach. In any case, saving money is always a good option.

Tips for building a good emergency fund

Here are some tips for building a solid emergency fund without overburdening yourself.

Know exactly what an emergency is

The concept of an emergency also needs to be clearly defined when building your fund. This is because you shouldn’t confuse an adverse situation with a real emergency. 

Typically, the purpose of the fund is to help when the situation becomes too complicated, especially with medical issues, job layoffs, and problems with homes and cars.

Choose where to store the money

Deciding where to keep your money is crucial. While the emergency fund doesn’t necessarily need to carry the same risks as investments, it’s important to make a good choice. 

Look for a bank that values your money and offers favorable conditions to save securely.

Calculate according to your expenses

According to financial experts, a good emergency fund should cover 6 to 12 months of your expenses. 
This includes rent, food, and other daily expenses. 

The ideal reserve fund should account for your monthly expenses, multiplied by at least 6 months, ensuring you have at least six months of living expenses in case of an emergency.

Plan realistic contributions

It’s no use planning to deposit two thousand Canadian dollars every month if you’re not able to do so! 

In fact, all planned deposits need to align with your needs and be achievable in the long term. After all, the fund is built month by month.

Learn how to save money

Saving money is the key to successfully building a good emergency fund. Start by observing your daily expenses to identify areas where you can cut back. 

This can come from many places, like ordering food delivery or buying unnecessary clothes that you won’t even use. 

Above all, saving money is a habit you need to build day by day with a lot of perseverance.

Know exactly your financial situation

Learn to continuously assess your financial situation. What are your profit margins? How far can you go? What are your limits? 

Fully understanding your situation is key to creating a realistic budget that reflects exactly what you have and what you earn. 

In addition to making a budget at the start of the year, it’s essential to regularly reassess your financial situation to maintain a complete and secure overview.

Study about finances

Learning about finances is always a good path to effectively managing your money. Additionally, it helps you avoid falling into traps and false promises that are scattered around. 

Financial planning starts with a lot of study, researching key topics not only about emergency funds but also about earning and saving money.

Written by

Gabriel Gonçalves

Writer with over 10 years of experience specializing in finance and education. Master's student in Communication and an expert in online content production.