Start preparing a safety net for unexpected expenses.
Your washing machine breaks. You have a leaky roof. You lose your job. Your child gets sick.
No matter how well you plan, you simply can’t predict if and when unexpected expenses are going to arise — and inevitably they will. Your pay cheque may only go so far towards covering costs, and you’ll want to avoid going into debt or dipping into your retirement or long-term savings.
So what can you do to prepare?
Start saving now.
Open a separate savings account for emergencies, and get into the habit of depositing a weekly or monthly amount, even if it’s just $10 or $15. That may mean one less meal out, but it will add up over time. A great way to get started is to set up automatic savings. Once you’re in the habit of automatically setting money aside each month and adjusting your spending habits, you can gradually increase the amount.
How much is a good amount to save?
Ideally, three to six months of your salary should be available in cash. Ultimately, remember it’s okay to start small. Six months of your salary is a lot of money to save, so work to build up your savings gradually. And, hey, you may get lucky and never have to use it, in which case it will serve as another form of savings you can draw on down the road.
Where can you save it?
It’s important to keep your money in a place that will be fairly liquid, so you can get to it quickly in the event of an emergency. With this in mind, consider setting up a savings account that you can easily access and manage; in addition to saving, you may make a bit of interest. You may also considered investing some money in a redeemable short-term investment however, you may want to avoid having your emergency fund tied into stocks or mutual funds, because the fluctuation of the market could cause you to lose money over the short term and they may be harder to access. Talk to your banker about how to start an emergency savings fund so that when life’s little emergencies do occur, you won’t have to panic.
To learn more about how a BMO Mortgage Specialist can help you with your home financing needs, visit bmo.com/mortgagespecialist.