Pattie Lovett-Reid: COVID-19 shows importance of having an emergency fund
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What’s the difference between those who get through a financial storm and those who don't?
The answer might be an emergency fund.
Edward Jones partnered with Leger Research to get a better understanding of how Canadians have been financially impacted by the COVID-19 pandemic. What they found is the impact differed depending on the respondent’s age and life stage.
The good news: It isn't all doom and gloom.
The survey, released last week, found older Canadians have seen the greatest impact on their retirement saving, with more than 53 per cent saying have seen their savings affected by market volatility, layoffs and salary reductions. But the older cohort was also the most prepared and optimistic that they could weather the storm as they recognized the closer they were to retirement, the greater of an impact the pandemic could have on their plans.
Fifty-six per cent of younger Canadians aged 18-34, meanwhile, have experienced a more immediate impact, according to the survey. They are less likely to have emergency savings in place, more likely to see a reduction in their salary, and are more likely to struggle to pay their bills, their mortgage, or their rent. They are also less confident in their ability to weather the storm but are still optimistic their prime earning years are ahead of them – and they are.
With salary reductions, savings compromised, and layoffs, COVID-19 is illustrating how an unexpected situation could hit you financially when you least expect it – and the importance of having a financial cushion.
An emergency fund in an ideal world could cover off your basic living expenses such as groceries, rent or other needs for three-to-six months. Having an emergency plan in place can make the difference between hitting a speed bump or minor detour and financial ruin.
Here are three tips for effectively building your emergency fund:
- Break it down. Decide how much you want in your emergency fund. Start small and tuck some money away each month.
- Set up automatic pre-authorized purchase plans. Have the money come right out of your account on a regular bases. Pay yourself first.
- Arrange for a line of credit or a credit card for emergency purposes only.