Would an unexpected expense derail your finances?

For many Canadians, financial emergencies don’t start with a major life event. Rather, it’s something more common, like a sudden flat tire, water spilled on a laptop or an unexpected trip to the dentist.

Yet, new data shows these everyday surprises are becoming harder to absorb, as many Canadian households report they are struggling to navigate higher living costs, elevated debt and economic uncertainty.

“If you’re feeling that pressure, you are certainly not alone,” says Erica Nielsen, group head of personal banking at RBC. “Canadians are dealing with a lot these days. Amidst the ongoing high cost of living, they’re trying to cover day-to-day expenses to support themselves and their families, while also thinking about savings, home ownership and retirement.”

Nielsen adds, “When people hear ‘emergency,’ they may think about a job loss or something potentially life changing. In our consumer polling, however, the expenses that come up most often as sources of real financial pressure are much more everyday. These aren’t once-in-a-decade events. They’re the kind of expenses that can show up throughout the year without warning.”

An emergency readiness poll conducted by RBC this past spring found that more than half (52 per cent) of Canadians worry they have not saved enough for emergencies and 42 per cent are concerned a single major unexpected expense could derail their finances.

The most common worries among Canadians surveyed include unexpected car repairs or transportation costs (39 per cent), major home repairs (38 per cent) and medical or health-related expenses (31 per cent).

And while poll respondents are aware of the benefits of having an emergency fund – saying it provided peace of mind (51 per cent), a financial safety net (49 per cent) and helped avoid debt – three-quarters cited the high cost of living as the biggest barrier to building such a fund, with nearly half stating their finances are simply too tight to make meaningful progress.

“Think of an emergency fund as a building block,” Nielsen advises. “Having money set aside for unexpected expenses can help protect your day-to-day finances and reduce the need to rely on credit when something unexpected happens.”

Being financially prepared for these emergency events can begin in small ways that don’t stretch finances that are already thin. It’s about having some money set aside to be better prepared when life doesn’t go according to plan.

Nielsen suggests starting small, with an initial goal of saving up to $500 in an emergency fund and then aiming for $1,000. This begins to create a cushion for when the unexpected occurs, while building confidence and momentum for future savings.

One of Nielsen’s main recommendations and simplest approaches is automating these savings. Setting up an automatic transfer on payday, or on the same day every month for those with an irregular income, can help make saving easier. Even if it’s only $25, the automatic transfers allow your emergency fund to grow gradually without requiring active management.

“Automating your savings means you’re making one less financial decision each month,” she says. “Also, if you keep your emergency savings in a separate account, you can reduce the temptation to dip into your fund for non-essential purchases.”

There are several no-cost online resources that can help Canadians create and grow their emergency fund. As one example, Nielsen points to the complete emergency fund guide posted on RBC’s free online hub, My Money Matters. This guide explains the 3-6-9 emergency fund rule, a flexible savings framework that helps Canadians choose a target based on their personal circumstances. For example, it suggests saving three months’ worth of expenses for those who have a stable income and few dependents, six months’ worth for those whose income is variable or who have dependents and nine months’ worth for Canadians who are self-employed or have significant financial obligations. On top of this, RBC offers an online savings calculator that helps people estimate how much they may need and build a plan that fits their circumstances.

Nielsen also encourages Canadians to make sure their emergency fund grows with them by undertaking an annual review. What was the right amount set aside at one stage of life may not be the right number a few years later.

The needs you have for your emergency fund will likely change as your life evolves, Nielsen adds. “Starting a new job, buying a home, having children, or taking on caregiving responsibilities — each of these can meaningfully shift what you’d need if an unexpected cost comes up or your income is interrupted. The fund you built in your 20s may look quite different from what makes sense in your 30s.”

The key, she concludes, goes beyond simply hitting your goal amounts.

“Financial preparedness is not about setting a number once and walking away. It’s about making sure what you’ve built continues to work for the life you’re actually living.”

Ready to create your own financial cushion? Access RBC’s free Your Complete Emergency Fund Guide and Savings Calculator to begin building your emergency fund today.

This story was created by Content Works, Postmedia’s commercial content division, on behalf of RBC.