Emergency Fund – How much is enough?

I am a big believer in emergency funds. When my husband was in the hospital I was off work for four weeks. I had a bit of vacation time built up at work, but I knew I had my emergency fund to back me up if I ran short of money. When my car conked out on the highway out of town, I put the towing bill on my credit card, but I knew I had money in my emergency fund to cover it, if I needed it.

Most experts recommend 3-6 months in your emergency fund. I have $12,000 in my emergency fund which would cover 6 months of bare bones living. I have been keeping this in my Tax Free Savings Account (TFSA) in a high interest savings account at Canadian Western Bank. A couple of months ago I pulled that money out to make a short term loan to a friend. He only had the money for a few days and gave me $100 interest, so it was worth it, but now I can’t put it back in my TFSA until January.

As luck would have it, PC Financial, where I have an account for my small side business, has a 2.25% interest  promotion on right now until the end of January, so I put the money in there so I am not losing anything on the interest side.

But since the money is out of the TFSA account it got me thinking, “Do I really need $12,000 in cash in my emergency fund?” Maybe $5000 – $ 6000 would be enough. If I lost my job I would only have to cover a couple of weeks until EI kicked in. Plus, I could always draw money out of my Streetwise funds. The risk with that plan would be if I had to draw money out while the market was down I could be losing a butt-load of money. I also have a cashable GIC worth a little over $4000 at Ally (now Royal) that I could cash, with a penalty, if I absolutely had to.

So, I am leaning towards keeping $6000 in cash, and putting $6000 in my ING Streetwise TFSA in January or February. Or, another option would be to put the $6000 on the heloc. That would make a nice big dent in it, and give me a guaranteed 3% return. The problem is that even though I have to pay off the heloc, I don’t have access to additional funds on it. In other words, I can’t get any money on the heloc. (They shut it down when my husband died.) So, let’s say I had some major catastrophe and needed $10,000, I wouldn’t be able to use my heloc.

We’ll see. I still have a couple of months to mull it over. I don’t like to make quick decisions with my money if I don’t have to. One thing is for certain, shit happens, it’s just a matter of time. Best to be prepared.

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2 Responses to Emergency Fund – How much is enough?

  1. Ree Klein says:

    I like the idea of putting $6k on the HELOC to make that debt disappear faster. The relief that comes with being debt free is hard to put a figure on. To me it’s priceless. Once all my debt was torched, including my mortgage, I was able to save a lot.

    If something should come up that requires more than your liquid $6k, it sounds like you have a fall back plan. It may not be the most desirable solution, but it is a solution. It’s just as likely that you won’t have an emergency of that scale. It’s a very personal decision but being debt free is wonderful…I can’t wait until you’re there!

  2. Alicia says:

    I think Emergency Funds are so personal and based on the situation of the individual. I think $6000 or so would cover most anything, unless a crazy mess of disasters happened at the same time. It is all what feels good to you, and it isn’t crazy like 25k in cash 🙂

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