Four Things We Would Do In A Financial Emergency

Owen Winkelmolen

Advice-only financial planner, CFP, and founder of

Work With Owen

What would you do in a financial emergency? What steps would you take? Do you have a plan in place?

It turns out that nearly 4 out of 10 people don’t have even a basic plan for a financial emergency. In the latest Financial Planning Canada survey, nearly 40% of respondents said they do not have an emergency fund.

While that stat is pretty alarming, the good news is that 6 out of 10 people are saving for an emergency, but is that the only thing you can do?

Our plan includes multiple layers of protection if we were faced with a major financial emergency. There are four key things that we would do. These four things would allow us to cover basic expenses for 5+ years! How’s that for peace of mind!

This 5-year “safety net“ wasn’t something that we created overnight, but we’re thankful we now have a strong plan just in case the worst were to happen. We hope to never get to that point, but it’s nice knowing we have a solid plan that’s ready to go in case things get really, really tough.

Here are the four things we would do in a financial emergency…



One: Draw Down Emergency Fund

One of the simplest and most effective ways to prepare for a financial emergency is through an emergency fund. An emergency fund is essentially a pile of cash you can fall back on in an emergency (not a literal pile of cash, but that would be nice too).

The typical recommendation is to have between 3-months and 6-months of expenses saved in an emergency fund. This provides some breathing room in case of a financial emergency. This could also be higher or lower depending on your specific circumstances.

A financial emergency could be a job loss, a health emergency, or an expected expense that happens sooner than anticipated, like a new vehicle purchase or a large home repair.

There are some “hybrid” options when it comes to emergency funds too. Some people like to keep a smaller amount of cash-on-hand and use a HELOC for larger emergencies. This is a slightly higher risk approach but may be suitable in certain situations.

Still, there is no better peace of mind than having a large pile of cash to draw from. We aim to always have 6-months of expenses in our savings account for an emergency.



Two: Create An Emergency Budget

The second layer of our emergency plan is an “emergency budget”. This is a scaled down version of our regular budget with only “core” spending. It’s still a livable budget but one without much frills.

Our emergency budget means that we can stretch our emergency fund that much further.

One of the first steps to creating an emergency budget is to understand where your money is going. Once you have a good idea of where your money is going it’s easy to pick the categories that could be slightly reduced in an emergency.

Our emergency budget scales back on things like vacations, restaurants, entertainment, RESP contributions, vehicle upgrades, home repairs, and of course savings.

(By the way, an emergency budget is also great in retirement for periods when investment returns are very negative like a recession or depression)



Three: Earn Extra Income

The third layer of our emergency plan is to earn extra income. With a young family we’d prefer to not trade more of our time for money, it’s already a very precious resource, but in an emergency, we could take on extra work to help close a financial gap.

With our emergency budget in place, and savings reduced to zero, even a modest income would help extend our emergency fund that much further.

This could be part-time work, self-employment, gig work etc. The important thing is that we’re prepared to take on extra work if the worst were to happen.



Four: Draw Down TFSA Investments

The fourth and last layer in our emergency plan is to draw from our TFSA investments. This is a last resort because our TFSAs are part of our retirement plan. But the benefit of TFSAs is that they are very accessible in an emergency. Unlike RRSPs, withdrawals from a TFSA do not destroy contribution room, that TFSA withdrawal will be added back to TFSA contribution room the following January 1st.

This makes a TFSA a great account to draw from in an emergency because that tax-free space can be filled up again in the future when things are back on track.

Even high-income earners, who may have a tax advantage from RRSP contributions, should consider building up a small or medium sized TFSA for this very reason. It’s always possible to withdraw from the TFSA in the future to max out RRSP contribution room, but you can’t do the opposite, so consider building up a small or medium sized TFSA now if your tax rate will remain the same for years to come.



5+ Years Of Protection

Doing all those things would mean we can cover basic needs for 5+ years! This depends slightly on the value of investment assets inside the TFSA and how much extra income we could generate, but in general we have a significant amount of protection if things go wildly wrong in our financial future.

Needing to protect against 5-years of financial disruption is a pretty extreme thought, we hope to never even get to layer 3 or 4 of our emergency plan in any reasonable scenario, but knowing we can sustain basic needs for 5+ years certainly provides a lot of peace of mind.

It took us years to get there, but now it’s nice to know that in the worst-case scenario we’re set for half a decade without needing to draw on registered accounts.

Free Resources

Free Resources - Sidebar

Owen Winkelmolen

Advice-only financial planner, CFP, and founder of

Work With Owen


Join over 250,000 people reading each year. New blog posts weekly!

Tax planning, benefit optimization, budgeting, family planning, retirement planning and more...



Join over 250,000 people reading each year. New blog posts weekly!

Tax planning, benefit optimization, budgeting, family planning, retirement planning and more...



Submit a Comment

Your email address will not be published. Required fields are marked *

Pin It on Pinterest

Share This