How liquid is your rainy day fund - assuming, that is, you do have an emergency reserve? The annual BMO Rainy Day Survey showed 68 per cent of Canadians have had to rely on their emergency savings to pay for an unexpected expense. But more than half of those didn't have enough to cover the full cost of the emergency.
About half of Canadians have less than $10,000 in their rainy day fund and 17 per cent have less than $1,000.
The survey asked what people would do once their rainy day fund runs dry:
- Sell assets like car and jewelry, or turn to family and friends for support, said 41 per cent.
- Use a line of credit, said 27 per cent.
- Cash in investments, said 18 per cent.
Where do you fit in? The survey showed the main reason people have an insufficient - or no - reserve fund is lack of extra money. So if you live on the edge, at least set up a line of credit, which is usually the cheapest way to borrow. Do this while you have regular income - just in case your emergency turns out to be losing your job.
Christine Canning, BMO Bank of Montreal's head of Everyday Banking Products, suggests an emergency fund should equal three to six months' income.
"Cutting back on nonessential spending - buying coffee or lunch at work - is one way to gather extra funds for a rainy day fund," she said.
Make sure you tell your financial institution to automatically transfer those savings to your reserve fund every week or they will simply disappear into other spending.
And keep that money in safe and liquid instruments like a tax-free savings account, short-term deposit, high-interest savings account and money market mutual fund.
If you can, try to set aside money regularly for major home, car and similar expenses which you know you will need to cover. Think how good it will feel to have the money on hand.
Mike Grenby is a columnist and independent personal financial advisor; he'll answer questions in this column as space allows but cannot reply personally. Email [email protected].
