We talk to Erica Nielsen, Group Head, RBC Personal Banking, about emergency funds: why you need one, how large it should be, and how to go about building it.
What are the most common unexpected expenses people face that can get them into financial trouble?
When most people imagine an emergency expense, they picture something dramatic and once-in-a-lifetime. The reality is usually much more ordinary. We recently polled over 1,500 Canadians, and the costs that came up most often were unexpected car repairs or transportation issues, major home repairs, and medical or health-related expenses. Factor in appliance replacements and pet emergencies, and it's easy to see how quickly everything adds up.
Forty-four percent of Canadians told us that they have faced these kinds of costs over the past year, with the average price tag of their largest emergency expense at around $5,000. That's a significant hit for anyone, but especially if you're early in your career and still building financial stability.
What gets overlooked, though, is the cumulative effect of smaller surprises. A third of Canadians say even a small, unplanned cost would be difficult to absorb, and four-in-ten say they’ve underestimated how much they should save. It's not always one big emergency that creates financial stress – it can be a steady drip of mid-sized costs you’re not prepared to handle. That’s why even a modest emergency fund can make a meaningful difference, both financially and emotionally.
What does being prepared realistically look like for Canadians today? How much money do people need set aside to feel secure covering most surprise costs?
We understand that it's hard for many Canadians to build an emergency fund. One straightforward approach is the 3-6-9 emergency fund rule. If you're in a dual-income household with stable jobs, aim for a fund that covers three months of essential expenses. If you're a homeowner or supporting a family on one income, think about having enough money to cover six months. And if you're self-employed or your income fluctuates, you may want to work toward having closer to nine months’ worth set aside. I know that even three months can feel daunting, but these are goalposts, not pass/fail thresholds. Any progress is progress.
The key words here are ‘essential expenses’. Start by calculating what you actually need to pay for each month: housing, utilities, groceries, insurance, transportation. Think of it as covering the basics that keep your life running, separate from your vacation fund or new car savings.
If you're not sure where to start, RBC’s My Money Matters hub has a step-by-step guide to building an emergency fund using the 3-6-9 approach, and our free Savings Calculator can show how a personalized target could grow with regular contributions.
How does your age and where you're at in your life (for example, being single vs. being married vs. having children) impact what your emergency savings plan looks like?
All of these factors have a significant effect on emergency fund planning. Your fund should reflect your current responsibilities, income stability, and stage of life, and evolve as those change. Gen Z (born after 1997), more than any other generation, told us their top worry is job loss or a dip in income. That makes sense when you're earlier in your career and your income may be less predictable. Meanwhile, Millennials (born between 1981 and 1996) are more likely than Gen Z to express concern about car repairs, major home repairs, and pet emergencies, the kinds of expenses that often come with home ownership, growing families, and added responsibilities.
Income plays a role too. About a third of Canadians don't have an emergency fund, but that climbs to 38% among households earning under $100,000 a year. The gap isn't just about generation or life stage. It's also about how much flexibility your monthly cash flow allows.
In a dual-income household, a smaller cushion may be sufficient to start. Once you're supporting dependents (children, aging parents, or both), the picture shifts as more people rely on your safety net.
There's no single right answer. What I'd encourage everyone to do is revisit their emergency fund at least once a year, or whenever something significant shifts: a new job, a move, or a growing family.
Many Canadians feel like there is nothing left to save after covering everyday essentials and paying down debt. How should they approach emergency savings when money is already stretched?
I know this is the reality for so many Canadians, who point to the high cost of living as the top barrier to building their emergency fund. They feel pulled in too many directions, with finances already stretched too thin. Among younger Canadians, the feeling is that their income is simply too low to save consistently. So, if that's where you are, you're not alone.
I would say, start smaller than you think you need to. Even $50 a month is a meaningful step to build your rainy-day fund. It might not cover a big medical bill, but it can help you cover a flat tire or an unexpected vet bill without reaching for a credit card.
Automating your savings is another easy way to get started. If you set up pre-authorized contributions from your paycheque, your emergency fund will steadily grow, without you having to think about it.
Once someone starts building their emergency fund, where is the best place to keep and grow that money?
The most important thing is to keep your emergency fund separate from your everyday spending.
When the money is in a different account, it stops looking like ‘spending’ money, and you're far less likely to chip away at it for something that isn't actually an emergency.
You also want that money to be accessible. The whole point of an emergency fund is that it's there when you need it, without delays. A high interest savings account can work well, for example. It keeps your money safe, earns some interest, and is available the moment life throws you a curveball.
Should people prioritize building their emergency fund before they start investing — or can they do both at the same time?
This is one of the most common questions we hear, and the answer depends on your situation. There's no one-size-fits-all approach. That said, I'd encourage you to think about it this way: even a modest emergency fund can change how you feel about your finances.
An emergency fund helps absorb financial shocks without derailing your longer-term goals. If you don't have that safety net and an unexpected expense hits, you might be forced to take on higher-interest debt to cover it or even pull money out of investments. Both options set you back financially. Having even a baseline emergency fund keeps the rest of your finances intact.
For many people, it can make sense to build an emergency fund first, even a small one, and then begin investing alongside it. You don't have to finish one before starting the other. That foundation of financial security can make your overall outlook feel less stressful and more sustainable.
If you're not sure what the right balance looks like for you, a conversation with an advisor can help. They can look at your full situation and work through what makes sense for your life.
What is the biggest misconception that holds people back from building an emergency fund, and how can people overcome it?
The biggest misconception I hear is that you need to fully fund your emergency savings before it counts – and that’s not the case. Nor should you feel intimidated when you hear the target is three to nine months of expenses and think it’s so far away there's no point starting.
The reality is that a $500 rainy day fund is better than nothing. Then you aim for $1,000 and keep building. Every step forward counts, and every dollar set aside is a decision that your future self will thank you for.
Money remains one of the few taboo topics, despite being a top source of stress for so many Canadians. Talking about your finances, whether with a partner, friend, or an advisor, is often the first step toward gaining control and clarity. Focus on one or two goals rather than trying to tackle everything at once and take it from there.
Some of the biggest benefits of an emergency fund aren't even financial. It provides peace of mind and reduces stress. The financial protection is an important part, of course, but the bigger payoff is often how you feel going through your day knowing you have something to fall back on.
Whatever your starting point, there are resources and people who can help. It’s not about how much you save at first. It's that you start.
