Chaos is all around us. It breathes the same air we do and lies dormant (grinning!) in sidewalk cracks, waiting for the chance to trip you. Chaos is that loose hook of yarn hanging on your favourite shirt waiting to be grabbed by some encroaching nail on your way out the door. It’s the unexpected – the middle-of-nowhere flat tire, the busted hot water tank or even a devastating job loss.
And often, chaos has a way of slipping its trickster fingers into your pocket book.
So are you saving enough for the worst case scenario?
Most Savings Not Up To The Task
According to BMO’s third annual Rainy Day survey, 68 per cent of Canadians have had to draw from the ol’ rainy day fund in the event of an emergency, and 58 per cent of those say their savings didn’t quite cut it, failing to cover the unexpected expense.
The survey also shows 51 per cent of Canadians have less than $10,000 in emergency savings, while one-in-five have less than $1,000.
Car Repairs Account For Almost Half Of Canadian Emergency Savings
Of those polled, 49 per cent used their emergency fund to cover an unexpected auto repair, 47 per cent have had to put that money towards an emergency home repair and 35 per cent of those who were hit with a job loss had adequate emergency funds to sustain them.
Many cite a lack of extra money (57 per cent) as keeping them from having an emergency fund.
More Canadians Are Choosing To Save
Despite the polarizing attitude towards emergency funds in the nation’s households, Canadians are, it seems, saving more.
BMO Economics found that the personal savings rate climbed from a historic low of one per cent in 2005 to 5.5 per cent in the first quarter of 2013.
“It’s encouraging that the savings rate in Canada is beginning to trend upward,” says Christine Canning, head of Everyday Banking Products at BMO. “However, many Canadians are still coming up short when faced with a financial emergency.”
She adds that for many, establishing an emergency fund is a lesson in frugality.
“Cutting back on non-essential spending – such as buying coffee or lunch at work – is one way to gather extra funds to contribute to your rainy day fund,” she says.
How Much Should You Be Saving?
For safety’s sake, a typical emergency fund should be about three to six months of your income and held in a savings account or an easy access and stable investment fund.
According to the survey, half of those with an emergency fund hold it in a tax-free savings account, 47 per cent just use a standard savings account, while an additional 47 per cent put it in GICs, mutual funds, stocks and bonds. An additional 34 per cent use their existing chequing accounts, while 30 per cent turn to a high-interest savings account.
Also, if you’re the “hide-it-under-your-mattress” type you’re not alone – 16 per cent of Canadians keep their emergency savings in cash.
The takeaway from the survey – set aside some funds and prepare for the chaos.
“It’s essential to have some type of emergency savings put aside for a rainy day, but where you keep it can make a significant difference,” adds Canning.