The short answer
A common guideline is three to six months of essential expenses. Essentials means what you'd still have to pay if your income stopped: housing, utilities, groceries, transport, insurance and minimum debt payments. Not your full spending.
Aim for the higher end, or more, if:
- your income changes month to month, or you're self-employed
- your household depends on one income
- you have dependants, or your job is in an industry with layoffs
Build it in stages
- A starter cushion of $1,000 to $2,000. Enough to handle a car repair or a dental bill without a credit card.
- One month of essentials. Covers a gap between jobs or a delayed paycheque.
- Three to six months. Real protection against a job loss.
If you have high-interest debt, many people build the starter cushion first, then focus on the debt, then come back to finish the fund. That stops new emergencies from landing on the card you're paying off.
Where to keep it
Somewhere safe, separate and reachable:
- Safe: not invested in anything that can drop in value. Emergencies often happen when markets are down too.
- Separate: not your everyday chequing account, so it doesn't quietly get spent.
- Reachable: you can move it to chequing within a day or two.
A high-interest savings account is the usual choice. Some people hold it as cash savings inside a TFSA so the interest isn't taxed. Check that the account is covered by CDIC or your provincial deposit insurer.
What counts as an emergency
Unexpected, necessary and urgent: job loss, a car repair you need to get to work, an urgent home or medical cost. A sale, a holiday or a yearly bill you knew was coming are not emergencies. Give those their own savings goals.
When you use it, refill it
Using your emergency fund means it worked. Afterwards, put your regular transfer back to work until it's full again.