Set clear boundaries for what constitutes an emergency when withdrawing funds.Getty Images
From war in the Middle East and shifting U.S. tariffs, to mounting job losses and the rising cost of living, it’s understandable that Canadians are uneasy about their economic futures.
Experts say it’s vital to have an emergency fund in these times to help manage unexpected life events or expenses, such as job losses, family emergencies that require unpaid time off, or major home or auto expenses.
Socking away savings is easier said than done, especially during tough economic times.
“In theory [emergency funds are] fantastic. In practice, they’re next to impossible unless you have zero debt,” says Matt Fader, a licensed insolvency trustee with Allan Marshall and Associates, based in Dartmouth, N.S.
According to a 2025 survey from H&R Block Canada, nearly three-quarters of Canadian respondents worry they’re not saving enough, while close to two-thirds said they didn’t have enough money left over from their pay cheques to build savings.
A 2025 report from the Financial Wellness Lab at Western University found that more than 60 per cent of working-age Canadians couldn’t cover a $1,000 emergency without borrowing or going into debt.
A “highly liquid cash buffer” can help people get through tough financial times without going deeper into debt, but the report notes that behavioural biases, such as present bias – the tendency to favour immediate gratification over future rewards – can often “stall good intentions” to build a rainy-day fund.
“It doesn’t matter if you’re … rich or poor; you should never put yourself in a position where you don’t have access to liquidity or excess funds,” says Joel Clark, chief executive officer and portfolio manager at KJ Harrison Investors in Toronto.
He recommends that workers stash 10 per cent to 20 per cent of their income as soon as they start earning, not only to build good saving habits but also to take advantage of compound interest over time.
“You should take it off the top and not hope that it’s there at the end of the month,” Mr. Clark says.
Pay down debt first, then build the rainy-day fund
While building up an emergency fund is important, experts say it shouldn’t be a priority over necessary monthly expenses and paying down debt.
“How does it make sense for me to have a savings account, which I’m told I’m supposed to have, but I have $20,000 [in debt] on a credit card?” Mr. Fader point out.
His advice is to pay down the debt first, which could take some time, then put the money into an emergency savings account.
Mr. Fader says he suggests people start by calculating their monthly expenses, including rent or mortgage payments, utility and phone bills, as well as grocery costs, and setting a target of how much to put in the emergency fund, and whether it’s three or four months of expenses, or more.
Set clear boundaries for what constitutes an emergency when withdrawing funds. For instance, dipping into it for holiday spending isn’t an emergency, Mr. Fader says, but flying to visit an ill parent or dealing with a job loss is.
Where to put the emergency savings
To remain accountable and to ensure the funds are used only for emergencies, experts recommend placing them in a separate, low-risk, liquid account.
Mr. Clark recommends a daily redeemable high-interest savings account as the best and safest place to hold emergency funds. While the interest paid on the account is quite low – currently about 2 per cent – it’s still more than a regular bank savings account with little or no interest.
He discourages people from locking the money into a guaranteed investment certificate (GIC), where access can be limited for months or years depending on the term, or investing it in stocks or bonds, which can be volatile and lose money.
“No one likes it when you need money to have to sell something at a loss,” Mr. Clark says.
Emergency funds can evolve with age and life stage
The amount that’s in your emergency fund should change depending on your monthly expenses and your stage of life, says Kyle Pearce, a corporate wealth management advisor and host of the Canadian Wealth Secrets podcast.
For someone just starting their financial journey with little net worth, Mr. Pearce suggests saving at least $1,000 to cover unexpected expenses.
“That’s what I think really hurts people quite a bit as they dip into it, thinking, ‘I’ll just pay it back,’” he says.
As you build your net worth by investing and perhaps saving for or purchasing a primary residence, he says there’s a greater need to save three to six months of expenses in case of a job loss, illness, or an emergency. That’s also a good time to ensure you have access to a zero-balance line of credit, Mr. Pearce adds.
As you enter a more mature stage with a rising net worth, including a residence, a growing registered retirement savings plan, and a tax-free savings account, “it gives you a little bit more freedom to potentially lean on that line of credit, or maybe consider doing something like a high early cash value life insurance policy,” Mr. Pearce says.
Another option is a whole life insurance policy, a permanent policy that provides life-long coverage. Premiums are set and provide a guaranteed death benefit. It also includes a cash value that grows over time. You can withdraw or borrow against that cash value to cover emergency expenses.
“[You] get GIC-like returns on the cash value, but then you get all the extra benefit of the permanent insurance at the end,” Mr. Pearce says, adding you can also borrow against that asset if needed.