How Your Emergency Fund Should Change When You’re a Homeowner

By Lauren Arnold, Planswell

When you become a homeowner, responsibilities drastically change from your renting days. For starters, you may now have a never-ending list of maintenance needs your landlord previously covered. These can include things such as plumbing, roof repairs, driveway maintenance, and appliance upgrades. 

These additional responsibilities can get expensive, so making an emergency fund is essential. However, when you are a homeowner, an emergency fund can seriously make or break you when it comes to dealing with unexpected costs. Let’s break down some of the biggest questions you may have in regards to your emergency fund when you own your home.

1.   How much money should be in my emergency fund?

Instead of viewing your emergency fund as something you may or may not use for surprise expenses, think of it as a budgeting tool. Yes, there is a chance that your roof will not need repairs this year or perhaps your furnace won’t break any time soon. However, in order to truly be prepared, you should plan on these ‘emergencies’ so you’re never stuck without the funds to make these repairs.

A good financial tip to remember is the ‘Rule of 3’:

  • Save three months of mortgage payments to support you if you lose your job, or in the case where you’re injured, until your disability insurance begins.
  • Have three percent of your property value saved for any major repairs your home may need.
  • Have three percent of your mortgage payments saved for small expenses.

There are a lot of general rules when it comes to emergency funds and how much should be saved. However, the ‘Rule of 3’ encompasses them all and ensures you will be 100 percent covered, whether the emergency is big or small. 

2.   Where should I hold my emergency fund?

It’s understandable that three percent of your property value can often be a daunting number. For example, if your home is valued at $600,000, that’s $18,000 you should have sitting, untouched, ready to help in those emergency situations. Although it is essential your emergency fund remains untouched, it doesn’t mean the money in that account shouldn’t be working for you.

Don’t opt for a basic chequing or savings account to house your emergency fund. Instead, you should focus on storing this money somewhere where it will earn some interest while also not costing you high fees. Be sure to consider your time horizon and when you plan to use the money. Your account will need to be liquid and accessible, so you can pull the money when you need it and avoid any penalty costs.. 

 A high-interest savings account or a conservative, low-cost exchange-traded funds (ETF) portfolio within your Tax-Free Savings Account (TFSA), are two great options to consider. Both of these choices will allow you to earn interest, while not locking your money in a non-accessible account. Keep in mind that if you plan to store your emergency fund in a TFSA to grow the money tax-free, do not over-contribute. Working with Planswell can help you keep a close eye on your contributions and withdrawals to ensure you don’t encounter this issue.

3.   How can I build up my emergency fund and savings while keeping up with any homeownership duties?

Once you own your home, maintaining a stringent budget becomes more important than ever. Make sure you are tracking your expenses diligently, to ensure you know exactly where you’re spending your money. If you don’t know where to start, Planswell built a budget calculator to help you.

After figuring out your budget, the number one action that will help you stay on track is automating your savings. One of the amazing ways digital wealth managers like Planswell are able to help people stay on track more than ever before is by setting up a pre-authorized contribution (PAC). 

With a PAC, you do not have to think about setting aside a specific amount each month. Those funds will automatically be transferred to your preferred savings account before you have a chance to spend it. By ensuring your savings are automatically growing on a monthly basis, you are removing the need for stressful self-discipline. 

Understanding what and why you’re doing certain things when it comes to your finances all begins with having a financial plan. Here at Planswell, we look at every part of your financial life – investments, insurance, and mortgage needs. So go ahead, spend the next few minutes building yours today and get a clear idea of everything you need to do to reach your financial goals.

Grow your wealth. Manage your borrowing. Protect your assets. Planswell  gives you a free plan that ties investments, insurance and mortgages together so you can maintain your lifestyle throughout work and retirement.