It can be overwhelming to think about saving money for an emergency while you’re in the midst of paying off a debt. If you are able to tuck some money away, here are some tips to save – even a little – so you can avoid adding to your debt in an emergency.
Why saving for a rainy day is important
While it’s important to focus on paying off your debts first, tucking some money away for an emergency can help you in the long run. If you find yourself without a job or dealing with an expensive mechanic or vet bill, having an emergency fund will lighten your financial burden. Here’s why:
- You can handle an unexpected expense without getting into more debt
- You can avoid having to take out a high interest loan
- You can have some peace of mind and maintain financial control
How to save for a rainy day
Separate your savings:
Consider opening a separate savings account that lets you make withdrawals without penalty. See if you can earn interest on the money you save. Use an Account Comparison Tool to find the right bank account for you.
Eliminate monthly expenses and add it to your rainy day fund:
Simple things like buying lunch instead of packing your own can add up over time. Consider the “wants” you can live without. Here are some ways you can do this:
- Eliminate some of the more expensive non-essential food choices from your grocery list
- Make your coffee at home instead of buying it
- Invite friends over for a potluck dinner instead of going out
- Use discount coupons, and shop sales wherever you go.
- Using an budget planner can be super helpful for tracking small, daily expenses as well as debt payments, so you know where you stand.
Make it a habit:
Budget your savings into your monthly expenses once you’ve accounted for living costs and paying off some debt. Make sure your contributions are sustainable and allow you to address your debt in a healthy way. Consider setting up an auto withdrawal to add a small amount to your fund every payday or once a month. Think about each purchase you make and how you can get the most out of your money to achieve your goals.
Plan for the long term:
Saving can take time, and sometimes the more expensive option in the short term can save you more money overall. For example, a more expensive, higher quality pair of shoes might last 2-3 times longer than its cheaper alternative, saving you the difference in price (and more) over their lifetime. Be careful in saving this way, as it only works for goods that aren’t used up right away and have time to “prove” their value. This style of saving can seem daunting when also facing debt but make will help in the long run.
How to stick to your plan
Make a plan that works for you and your debt payment strategy. Make sure it’s realistic and isn’t causing you more financial stress or pressure. A good rule is to save enough to cover three to four months expenses. This can seem like a lot, especially when dealing with paying off a debt, but is attainable if you stick to your unique savings plan. The Government of Canada also has a budget planning tool to help you stay on track.
Where to go for help
Setting up an emergency fund isn’t something we can help you with but there are other options to consider. You may be interested in speaking to your financial institution or a financial advisor to see if they can help you reach your financial goals. The Financial Consumer Agency of Canada also has information and resources available online to help you set up an emergency fund and manage debt.
Getting calls from a debt collector?
We know dealing with debt can be stressful, especially if you’re getting collection calls. In BC, you have rights when it comes to debt collection. Not everyone’s experience with debt is the same but the rules apply to all of us. Learn your rights in BC and access tools and resources to help you on your debt journey.
Learn more
How to get the calls to stop
What to do if it’s not your debt
The rules debt collectors must follow in BC
The impact of debt on your credit report
4 ways to manage debt
Debt relief: Credit counsellors vs debt repayment agents
8 tips for choosing a debt relief service
3 simple steps to create a budget
How to save for a rainy day
How to prepare for changing interest rates
About Consumer Protection BC
We are responsible for licensing debt collectors and regulating certain aspects of the debt collection industry in BC. The law speaks to when a collector can contact you and how they can communicate with you. We can’t help with every debt related issue and we’re not financial advisors. Find out more about us and the other industries and transactions we oversee by exploring our website.