Here’s a blast from the past that I love more than ever – the emergency fund.

It is meant for the inevitable financial surprises that can happen at any time. You know what they are – a dripping faucet, roof or hot water tank. A tooth. Being asked to be in a wedding party. They all qualify if the dollar figure is more than your chequing account can handle without risking an overdraft charge.

Emergency Fund

Credit cards and lines of credit are where most people pack their emergency expenses, and banks love this. [Brief note: try to avoid doing things that banks love. This is where their profits come from]. Using debt vehicles to fund inevitable emergencies isn’t a good idea because of the direction these things go over time, and there’s only one strategy that can help you avoid this path – it’s having an emergency fund.

The emergency fund doesn’t have to be $20,000. I am fine if it is just $1,000 or $2,000 for those who have jobs that are relatively secure and are renting. Maybe it’s $5,000 for those with a house and two cars. What is important is that it will cover your next emergency and it is sitting in a Tax-Free Savings Account – in cash. Don’t invest it in stocks or mutual funds. Make sure that when you need it, it is available as cash, perhaps through a transfer to your bank account within a day or two.

Those who have an emergency fund just sleep better. They are ready for the inevitable. They can focus on debt elimination or retirement savings without worrying that an unexpected bill could jump up and take a bite out of their plan.

When it is dipped into, it is topped up again as soon as possible. And because you’ll appreciate how this works in helping you avoid debt, you’ll be keen to get this protection back in place fast.

So take a trip back in time – and put in place an emergency fund with cash saved. It’s the buffer you’ll really appreciate when the time comes.