2021-08-25T23:52:11-04:00Apr 13, 2021|

Building an emergency fund: Tips for newcomers to Canada

One of the things the COVID-19 pandemic has shown us is that life can be unpredictable. Whether it is a drop or loss of income, paying a huge sum for an unplanned expense, or having to make sudden trips back home to visit family, unfortunate and unexpected events can happen without notice. An emergency fund – an essential component of personal finance – can help mitigate such losses and help stabilize your financial future. 

In this article:

What is an emergency fund?

An emergency fund (or a rainy-day fund) is money that’s set aside to be used during times of financial hardship or to cover unforeseen and unexpected expenses such as loss of income, accidents, treating an illness, undertaking sudden major home or car repairs, etc. It can also be useful to get out of an unhealthy/abusive relationship or a dangerous situation such as an unsafe living space. This money is usually saved in the form of cash (versus stocks, bonds, high-interest debt options, etc.) so it is easily accessible and can be used immediately. 

An emergency fund acts as your financial safety net, keeps you from spending on a whim, provides security and peace of mind, and ensures you don’t have to –

  • Dip into your long-term savings or retirement fund; 
  • Take on a huge debt to make ends meet; or 
  • Opt for high-cost loans (like a payday loan, credit card cash advance or an unsecured line of credit).

Tips Icon  Tip:
When deciding if you should use your emergency funds, ask yourself three questions:
1) Is the event unexpected?
2) Is it necessary?
3) Is it urgent?If you don’t answer “yes” to any of them, you shouldn’t touch your emergency fund. Note: Unexpected expenses should not be confused with occasional expenses such as back to school supplies, winter tires or vacation expenses – these are occasional expenses that should be planned and budgeted for.

How much money should you have in an emergency fund

The size of your emergency fund depends on a number of factors including your financial situation, expenses, lifestyle, and debts. Most financial experts suggest you have at least three to six months’ of living expenses in your emergency fund.

According to The Balance, you should target saving three to four months’ worth of expenses if:

  • You’re relatively healthy
  • You don’t have much debt
  • You live in a low cost-of-living area
  • You rent your home and your car (if you have one) is reliable
  • You could easily find a job if you lose your current one
  • You don’t have kids or dependents (including pets) relying on your income
  • Your job is very stable 
  • You have a partner or other family you can rely on for financial assistance

Saving closer to six months’ worth of expenses is recommended if:

  • You live in a high cost-of-living area
  • It’d be hard for you to find a job if you lose your current one
  • You own your own home (especially if you have an older home)
  • Your job isn’t very stable (you’re a seasonal worker, gig worker, or an artist)
  • You have children, a stay-at-home spouse, pets, and/or other dependents you support (in Canada or back in your home country)
  • You have a medical condition, or do high-risk activities (like rock climbing or BASE jumping)
  • You lack a financial support network

Saving a year’s worth of living expenses is ideal if:

  • You have a high income
  • You have a niche position or specialized job that might require relocation or take extra time to replace
  • You are the sole provider to multiple dependents (in Canada or back in your home country)
  • You are retired or are nearing retirement

Many people may have their personal situation overlap among these categories. But if you see more potential for risks in your life, consider saving more versus less.

Tips Icon  Tip:
For a simplistic view, use RBC’s emergency fund calculator to know how much you should save.

Tips to help you build your emergency fund

1. Practice healthy financial habits: Plan, budget, and set aside some amount each month

As a newcomer in Canada, planning and budgeting your expenses is important, especially while you look for employment and find a more permanent place to stay during your initial months in the country. Start off with the Arrive monthly expenses calculator to estimate and plan for your living expenses in Canada. 

Based on your personal situation and the size of the emergency fund you intend to build, use the estimates from the calculator to arrive at a suitable number. Once you find employment and have a stable source of income, you can direct a portion of your paycheck (or set up an automatic transfer) to your emergency fund each month. The idea is to start small (even as little as $200 CAD or $500 CAD) and gradually increase. 

Tips Icon  Tip:
Consider building an emergency fund before investing in volatile options like stocks, bonds, or ETFs (Exchange Traded Funds). If you’re saving for other goals such as buying a home, retirement, or going on a vacation, you can do so while contributing towards your emergency fund.

2. Keep money in an account that can be easily liquidated

An emergency fund should be easily accessible so that in case of an emergency, you avoid time delays while withdrawing money, or don’t suffer a financial loss or incur additional fees for withdrawing prematurely. In Canada, a High-Interest Savings Account (HISA) is a safe bet to keep your emergency fund. You can also consider a Tax-Free Savings Account (TFSA) or a Registered Retirement Savings Plan (RRSP) but be mindful of certain limitations around their withdrawals and contribution limits. 

Tips Icon  Tip:
Do not keep your money at home. Besides the obvious reasons of theft, pest-related damage or other calamity, you will lose the opportunity to earn interest on your savings.

3. Pay yourself first and monitor your spending habits

Many financial advisors advocate the “pay yourself first” savings technique. It means that when you receive any income, you should first contribute towards your savings goals such as an emergency fund or investment products. The best way to adhere to this routine is to set up automatic debits to specific savings accounts. 

To reach your financial goals faster, identify areas of expenditure that can either be cut out or reduced. For instance, evaluate streaming services that you don’t use regularly and cancel them, consider brewing your coffees at home instead of getting pricey lattes, bring your lunch to work instead of eating out, and use coupons, price match and other money-saving apps while buying groceries. These strategies will help control your expenses and allow you to put more money aside for your emergency fund. 

4. Save any additional cash or income you receive

In Canada, periodically, you may receive tax refunds from the government or a performance bonus at work. While it may be tempting to spend this extra cash, make it a habit to save and use it as a contribution towards your emergency fund – this will help you reach your financial goals much sooner. 

5. Assess and adjust contributions

Regularly assess your financial goals and contributions to see how much you’re saving. Account and budget for any change in your personal, family or work situations. Make adjustments based on current or anticipated scenarios, especially if you recently withdrew money from your emergency fund. Alternatively, if you’ve met your goals to cover the desired months’ expenses, you can then start directing your funds to other savings and investment products. 


As you settle in and make Canada home, there can be many unexpected and unforeseen circumstances. With finances, there isn’t a “one size fits all” approach as every person has a unique financial situation and varied priorities. That’s why speaking to a financial advisor is a good idea, especially as you’re navigating the financial landscape in a new country; they can help you gain financial control and plan for your life goals!  

Book an appointment to speak with an advisor about banking in Canada