Level Up Your Finances: Level Four

You have at least $500 in a dedicated high-interest savings account for use in case of emergency. *

Why It Matters

Many Canadians tap into high-interest debt like payday loans or credit cards when they run into an unexpected expense that they can’t pay off. Having even $500 can make it easier to respond to emergency repairs or required purchases. The high-interest savings account is important to make sure you are earning something on the funds, and a separate account will force you to be mindful of what counts as an emergency (e.g. NOT a super sale at your favorite store).

Goals For This Level

In Level 4 we want to make sure two things are in place:

1. You have at least $500 for use in case of emergencies

2. The $500 is sitting in a high-interest account*

1 - You have at least $500 for use in case of emergencies

This is pretty black and white, so instead of telling you why you need at least $500 in case of emergencies, we’re going to recap three questions you can use to diagnose if you should tap into the emergency fund, or if you should save up instead:

1. Can you save up for it? Is it possible to save the cash for this expense in a reasonable amount of time? For example, if you got a major stain on a blazer you wear to work, do you have other clothes that are appropriate to wear while you save up for a new one, or is that your one and only work-appropriate jacket and you have a major presentation tomorrow?

2. Is there an alternative? For example, if your glasses broke, do you have a spare pair you can use while you save up?

3. Will it cost you more to postpone paying for the emergency? For example, if you need a car repair, is it likely to get worse and cost you more to fix it if you delay doing the repair?

If you do ever need to tap into your emergency fund, make sure you prioritize topping it back up ahead of other ‘want’ type expenses.

2 - The $500 is sitting in a high-interest savings account

A dedicated account outside of your regular checking and savings will make it less likely that you tap into the funds for non-emergencies. A high-interest savings account will make sure your emergency fund is working as hard as possible for you.

If you’d like to shop around for rates, check out Rate Hub https://www.ratehub.ca/savings-accounts/accounts/high-interest

*Untangle Take

Here at Untangle Money, we love data. A study was done in 2019 (pre-pandemic), which showed most people need $2,467. The study showed that if you have this much saved, your probability of falling into financial hardship is low.

Often banks will give you a free account if you maintain a minimum balance in and around this amount.

We prefer the term Life Happens to Emergency Fund. The reason for this is that the only reason to have this money on hand is to stay out of debt. Let's repeat that in a different way. Do not use debt to pay for something if you have money on hand. The money is there to keep you out of debt. Life Happens and we don't always plan perfectly. This is why you have Life Happens money. This should be the first thing that you replace when new money comes in. STAY. OUT. OF. DEBT. whenever you can. The debt-spiral is one of the erosive things that can happen to your money.

What's next?

Stay tuned every Thursday for a new level in the series!

In case you missed it:

1. Level Up Your Finances: A Step By Step Guide For Your Money

2. Level Up Your Finances: Level One

3. Level Up Your Finances: Level Two

4. Level Up Your Finances: Level Three

Pineapple Finance Co is a collaboration between Emily and Elizabeth with a goal to answer one simple question: could they use Instagram to improve Canadian's financial literacy.

You can follow Pineapple Finance Co. over on Instagram, and we've linked two other blog posts written by Emily and Elizabeth here:

1. What We Learned From Our First 1,000 Followers

2. What We Learned From Our First 1,000 Followers: Part 2

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Financial independence is a huge part of being a strong, independent person, and it is our mission to help women, and anyone who doesn't feel safe or welcome in financial spaces typically dominated by cis men, set themselves up for financial success.

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