Why you need an emergency fund

A true emergency is one that threatens your survival, not your desire to live comfortably. And an emergency fund provides a financial cushion to fall back on during hard times. It is not used to buy a Playstation 3. Or hardwood floors. Or Christmas presents. Those are not true emergencies. Losing your job and not being able to pay rent is.

1. Getting started

You may feel you can't afford it, but the truth is you can’t afford not to have an emergency fund. A good way to “trick” yourself into saving is to pretend there is a $25 invoice that you must pay every two weeks. So when your next pay day rolls around, before you run out to buy groceries or pay rent or pay off debt, transfer $25 into a separate savings account. Then, two weeks later do the same thing. Before you know it, you'll have $100 in your bank account (I found saving the first $100 the most difficult). Once you get used to living off $25 less, you can try to increase the amount to $50.

If you think you're in a situation where you can't squeeze any cash out of your pay cheques where do you think you'll get the money to pay for an actual emergency when the time comes?

2. Where to keep it

It's smart to keep your emergency fund stored someplace that is not easily accessible. You might, for example, open up an online account with PC Financial or ING Direct. Or create a savings account that is not directly linked to your bank card. You will still have access to your cash if you need it, but it will force you to consider the emergency before making the withdrawal.

3. How much do I need?

There is no right answer. Take a look at your financial situation. How much is your rent or mortgage? How much will you need to pay the utilities and put food on the table? Strip out the cost of the comforts in your life - like your morning latte, Netflix subscription, or Friday date nights - and consider how much it would cost you each month just to survive. Then decide how much of a cushion you feel comfortable having.

For example, if you are a freelance graphic designer, it is not unreasonable to save 12 months’ salary because your income is not always guaranteed. The same can be said if you specialize in a line of work where jobs aren't readily available, or if you are prone to sickness or injury.

Remember that you cannot count on anybody else but yourself to bail you out of a tough situation. In my short career, I have been laid off twice - once for 12 weeks, and the other time for 6 weeks.

Both times I qualified for Employment Insurance (EI), and both times my claims took longer to process than the time I spent unemployed. When I did eventually receive my claim money, I put it right back into my Emergency Fund.

Whether you make $10/hour or $100/hour, everyone should have an emergency fund. Saving money takes discipline, not income.

Krystal Yee is a marketing and graphic design professional living in Vancouver. She also blogs at Give Me Back My Five Bucks.