Set clear limits on what emergencies you can withdraw money from.Getty Images
From the war in the Middle East and changing US tariffs, to mounting job losses and rising costs of living, Canadians are understandably worried about their economic future.
Experts say it’s important to have an emergency fund in these times to help manage unexpected life events or expenses, such as job loss, family emergencies that require unpaid time off, or major home or car expenses.
Saving money is easier said than done, especially in tough economic times.
“In theory [emergency funds are] fantastic. In fact, they’re next to impossible unless you have zero debt,” says Matt Fader, a licensed bankruptcy trustee with Allan Marshall and Associates, based in Dartmouth, NS.
According to a 2025 survey from H&R Block Canada, nearly three-quarters of Canadian respondents are concerned that they don’t have enough money saved, while nearly two-thirds said they don’t have enough money left in their paychecks for savings.
A 2025 report from the Financial Wellness Lab at Western University found that more than 60 per cent of working-age Canadians cannot afford $1,000 without borrowing or going into debt.
“Buddy savings” can help people get through tough financial times without going into debt, but the report shows that behavioral biases, such as the present bias — the tendency to prefer instant gratification for future rewards — can often “get in the way” of building a rainy-day fund.
“It doesn’t matter if you’re … rich or poor; you shouldn’t put yourself in a position where you can’t get money or a lot of money,” says Joel Clark, chief executive officer and portfolio manager at KJ Harrison Investors in Toronto.
He encourages employees to save 10 percent to 20 percent of their salary as soon as they start earning, not only to build good savings but also to use the compound interest over time.
Mr. Clark says: “You have to get it off the top and not expect it to be there at the end of the month.”
Pay off debt first, then build a rainy day fund
While it’s important to create an emergency fund, experts say it shouldn’t take priority over necessary monthly expenses and debt repayments.
How does it make sense for me to have a savings account, which I’m supposed to have, but I have $20,000? [in debt] with a credit card?” Mr. Fader pointed.
His advice is to pay off the debt first, which may take some time, and then put the money into an emergency savings account.
Mr. Fader said he suggests that people start by calculating their monthly expenses, including rent or housing, utility and phone costs, as well as grocery costs, and set a goal of how much to put in an emergency fund, and whether it is three or four months’ worth of expenses, or more.
Set clear limits on what emergencies you can withdraw money from. For example, tapping into it to use vacation money is not an emergency, Mr. Fader says, but flying to visit a sick parent or dealing with losing a job is an emergency.
Where to put emergency money
To stay accountable and ensure that funds are used only for emergencies, experts recommend placing them in a separate, low-risk, liquid account.
Mr. Clark recommends a savings account that can be bought every day as the best and safest place to save emergency funds. Although the interest paid on the account is very low – currently around 2 percent – it is still better than a regular bank savings account with little or no interest.
He discourages people from locking up money in a guaranteed investment certificate (GIC), where access can be reduced over months or years depending on the term, or investing it in stocks or bonds, which can fluctuate and lose money.
“No one likes it when you need money to sell something at a loss,” says Mr. Clark.
Emergency funds can change with age and health status
The amount in your emergency fund should fluctuate based on your monthly expenses and lifestyle, says Kyle Pearce, a business wealth management consultant and host of the Canadian Wealth Secrets podcast.
For someone who is just starting their financial journey without much cash, Mr. Pearce suggests saving at least $1,000 to cover unexpected expenses.
“This is what I think hurts people the most,” he says, “as they get into it, they think, ‘I’m just going to pay.’
As you build your net worth through investing and perhaps saving or buying a primary residence, he says there is a greater need to save three to six months of expenses in case of job loss, illness or emergencies. That’s also a good time to make sure you have the opportunity to get a zero-balance loan, Mr. Pearce adds.
As you get into a growing situation with a rising cost, including a place to live, a growing registered retirement savings plan, and a tax-free savings account, “it gives you more freedom to lean on that loan, or maybe consider doing something like a high-income premium life insurance policy,” Mr. Pearce says.
Another option is a whole life insurance policy, a permanent policy that provides coverage for life. The premiums are fixed and provide a guaranteed death benefit. It also includes money that grows over time. You can withdraw or borrow from that amount to cover emergency expenses.
“[You] get GIC-like returns on cash, but then you get all the added benefits of permanent insurance at the end,” Mr. Pearce says, adding that he can borrow against the asset if needed.
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