By Sheryl Smolkin

Recently Rob Carrick at the Globe and Mail wrote Prepare for the worst and make 2016 the year of the emergency fund. According to Carrick, the emergency fund is how you survive a financial setback without raiding your retirement savings, adding to your line of credit debt or borrowing from relatives. “Think of an emergency fund as insurance against a short-term setback that affects your long-term financial goals,” Carrick says.

20 Reasons Why You Need am Emergency Fund by Trent Hamm on thesimpledollar.com lists all of the obvious reasons (job loss, illness, urgent medical expenses) why you may need to tap into an emergency fund plus a few you never thought of. Some more obscure examples are:

• Your identity is stolen, locking you out of your credit cards and/or bank account for a while until the issue gets straightened out.
• An unexpected professional change forces you to relocate quickly.
• A relative or friend of yours passes away suddenly in another part of the country (or the world).
• You discover your partner is cheating on you, and for your own safety and peace of mind you have to pack your bags quickly and go.

How much do you need to save in your emergency fund? Typically financial experts suggest three to six months of fixed (as opposed to completely discretionary expenses). Emergency fund calculators from RBC and moneyunder30.com can help you figure out how much you should set aside.

Jason Heath at MoneySense is not a big fan of emergency funds if that means a substantial amount of cash sitting in a bank account doing nothing. He says, “I’m all for having the potential to cover 6 months of expenses in the event of an emergency. But I’d rather someone be able to do so through a combination of modest savings and ideally, a low-interest rate debt facility like a secured line of credit.”

Gail Vax-Oxlade believes the TFSA is a perfect place to stash your emergency fund. She says, “The best thing about the TFSA is its flexibility. You can take money out of your TFSA at any time for any purpose, without losing the contribution room, which makes this account the number one choice for socking away an emergency fund. So even if you take money out in one year, you can put it back the next, without affecting that year’s contribution limit ($5,500 for 2016).”

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