Managing Debt Wisely: Building an Emergency Fund
Debt can be a useful tool for achieving life goals like owning a home, pursuing education, or starting a business. However, it can also become a heavy burden, sometimes causing financial instability, stress, or making it more difficult to achieve long-term goals.
This four-part blog series will cover four major components of wise debt management, each of which plays a crucial role in building a secure financial foundation:
- budgeting and creating a repayment plan
- minimizing high-interest debt
- building an emergency fund
- seeking professional advice
An emergency fund is a vital component of financial resilience, as it helps you avoid taking on more debt in the future. The financial cushion provided by an emergency fund helps you cover unexpected expenses—such as car repairs or medical bills—without resorting to more credit.
Start by figuring out what level of emergency fund you want to create. The larger the emergency fund, the more financial shocks it will help you withstand, but if you are just starting out, you will want to start with a realistic goal. A small emergency fund can offer immediate peace of mind, even if it’s just $500 to $1,000. This initial amount provides a buffer for minor emergencies and helps prevent credit reliance. To build the emergency fund:
- Begin with small, consistent contributions. Building an emergency fund doesn’t have to happen all at once. Start by saving a modest amount each month, based on what your budget can handle, such as $50 or $100, until you reach your initial goal.
- Set up automatic transfers from your checking account to a dedicated savings account for your emergency fund. Automation makes it easier to build your fund without the temptation to skip contributions. And keeping the funds separate from your regular account makes it easier to avoid dipping into the fund for non-essential expenses.
After reaching your initial goal, you can revise your goal to aim to save three to six months’ worth of essential living expenses. This larger fund will provide a cushion for more significant financial disruptions, such as job loss or serious health issues. At this point you may want to use a High-Yield Savings Account which offer better interest rates, allowing your funds to grow passively while remaining accessible.
Charla Smith & Company is a Calgary-based Licensed Insolvency Trustee, serving the southern Alberta region. We regularly help individuals navigate their options for dealing with their debt. If you'd like a free, no-commitment consultation to review your options, contact us.
Disclaimer: This publication provides general information and should be seen as broad guidance only. The information contained herein cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon this information without obtaining specific professional advice relating to your particular circumstances. Charla Smith & Company Ltd. does not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.
Related Blogs
Frequently Asked Questions
- Typically, LITs focus on either consumer solutions or corporate solutions.
- Consumer solutions include Consumer Proposals and bankruptcy.
- Corporate solutions include Division I Proposals, bankruptcy, receivership, and plans under the CCAA (Companies Creditors Arrangement Act).
Charla Smith has experience delivering all of these options, so if you would like information on any of them, please contact us to find out more.
A Licensed Insolvency Trustee is your best resource to discuss whether a Consumer Proposal is right for you. For general information on Consumer Proposals, check out our Consumer Proposal page. However, the best way to find out what a Consumer Proposal would look like for you is to book a free consultation with a LIT.
There are many resources for those looking to get started on budgeting. Not-for-profit organizations that assist those with low incomes often provide budgeting workshops. Financial advisors will often help with budgeting, and there are a myriad of resources on the internet. But keep in mind that anyone who is trying to sell you goods or services can be biased in their advice, even if unintentionally.
A safe resource for budgeting is the information provided by the Canadian government's Office of the Superintendent of Bankruptcy, which you can find here. This is the basis for the financial counselling that Licensed Insolvency Trustees provide to those who make an insolvency filing, and we've found it to be very helpful to those we counsel.
If you're not sure whether budgeting will solve your financial difficulties, reach out to us to discuss your situation.
Reach out to us. You can make an inquiry directly from our website by clicking here, or you can call or text us at 1-403-899-3890. We will respond quickly, and work with you to find a good time for the meeting.
Head over to our other post What is the “sweatbox” and why should you avoid it? There, we discuss the sweatbox and why it is advisable to avoid it. We also provide links to additional information about the Consumer Bankruptcy Project which resulted in the term being coined.
Or, if you'd like to talk about your debt, contact us for a free consultation.
Other options besides a consolidation loan include an informal proposal to each of your creditors, a debt settlement program, the Orderly Payment of Debts program, a Consumer Proposal, and Bankruptcy. Be careful where you get your information about these options. Inaccurate and biased information is abundant, particularly on the web. A good, reliable resource to check out is the Government of Canada’s website, or check out Everything You Need to Know About Debt Settlement where we compare options.
Licensed Insolvency Trustees are a reliable resource, as they are specifically educated in this area and are licensed and regulated by the government, and are required to review all of your options with you. If you would like to talk to a Licensed Insolvency Trustee, we offer free consultations. During a Financial Assessment, we take an in-depth look at your debt and all related factors such as employment situation, family circumstances, spending habits and patterns to help us determine the best options to achieve debt relief.
YOUR TRUSTED CHOICE FOR DEBT RELIEF
With our experience and our caring approach, we will help you find the best option for debt relief based on your unique situation - from advice on talking to your creditors to a consumer proposal or bankruptcy, and everything in between. We are here to lift the burden caused by overwhelming debt.
Contact us today at 1-403-899-3890 for a FREE, no-commitment meeting, and let us guide you to regaining your financial footing.
Or, join our Email List to receive notifications when we post new blogs or have news to share.
