The healthcare debate going on south of us has me thinking. I’m grateful that I’ll never be denied basic healthcare for a pre-existing condition. I’m thankful that no matter how sick anyone in my family gets, the choice to see a doctor or go to the emergency room, will never be a financial decision.

In Canada we have a fairly wide financial safety net. Even if we have never saved a penny for retirement, once we hit 60 we can collect CPP or wait until 65, get more and add Old Age Security (OAS). If that isn’t enough, there is always the Guaranteed Income Supplement (GIS) for low income seniors. It won’t make you rich by any means but it’s enough for food, clothing and shelter, unless you live in Toronto or Vancouver in which case you might have to move in with a roommate or two.

If you are permanently disabled, there is the disability pension, as long as the person applying paid into the Canada Pension Plan in four out of the last six years. Again, it’s not a lot but it’s enough that a disease or accident shouldn’t leave you bankrupt. If the accident happened at work, there is worker’s compensation. If you get laid off, provided you are eligible, you can collect employment insurance.

For people with kids, Canada has one of the most generous maternity benefits in the world, not to mention the child tax benefit or the universal child care benefit.

In catastrophic conditions, social assistance is available. Each province or territory is responsible for their own social assistance programs. Look under the blue pages in your phone book under social services for the contact information in your province or territory.

Beyond all the government help that is available to people in need, there are thousands of non-profit organizations there to help in a crisis. Some of these include food banks, shelters, churches, mosques, synagogues and charitable groups that focus specifically on the poor in Canada.

Government benefits are just the basics of a financial safety net for worst case scenarios. One of our financial goals in life is to never rely on government assistance. We never refuse our Child Tax Benefit. Instead we use those funds to invest in the kid’s RESPs. We won’t turn away our Old Age Pensions, and after paying into the Canada Pension Plan for so many years, we consider it earned money anyway. Our hope is to never need the guaranteed income supplement or social assistance yet knowing that it’s there just in case, is a great comfort.

To help build an even bigger financial safety net, you might want to consider:

  • 3 – 9 months expenses in an emergency fund
  • life and disability insurance
  • adequate house and car insurance
  • an ever increasing retirement fund invested through RRSPs or TFSAs
  • a great social support system which includes people who are there for you in a crisis

I know beyond a shadow of a doubt that if my house ever burnt to the ground, my spouse died and I lost my job I have friends and family that would gather around me and support me throughout just as I would for any one of them. In many ways it’s the social support system that has the potential to be a person’s largest safety net.

As Canadians, we have a fairly wide financial safety net. Beyond these basics, it’s important we plan for a secure future so when we’re faced with a crisis, we don’t sink financially. I take great security in a wide safety net and hope with every increasing financial security I can be there for others when they hit some of life’s bumps along the road.

How big is your financial safety net?

Kathryn has been a staff writer for MDJ since January 2009. During the day she works in an office. In her off hours, she volunteers as a financial coach helping ordinary Canadians with the basics of money management. Kathryn, along with her husband and two children live in Ontario.

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Great top-level look at financial security, Kathryn!
I’ve recently decided to use money from a second job to fund a 3-9 month emergency fund…here goes nothing!

I must say, Kathryn, your posts are one of the *very few* in my RSS feed of which I read every word…and I never catch the author’s name until I get to the bottom of the post and think to myself, “man…this is good. I wonder who wrote this…”

I agree with the Wealthy Barber that large emergency funds are a waste of resources. 9 months worth seems crazy to me. Just contribute it to your RRSP instead (or your TFSA if you have maxed out your RRSP).

For small/moderate emergencies you should have insurance to cover it.

For large emergencies you can withdraw from your RRSP. Yes, you will have to pay tax when you withdraw registered funds, but if you are in a position where you need 3-9 months of money, you have almost certainly lost your job and are likely in a lower tax bracket than when you contributed the money in the first place.

Why let tens of thousands of dollars sit in a low interest account when you could have realized previous tax savings on that money by putting it into your RRSP?

That is, if you are really talking about an “emergency fund”, that should only rarely, if ever, come into play. If your definition of “emergency fund” is a slush fund to cover all those times you “accidentally” spend more than you make every couple of months, or those times when you haven’t planned for the future (“Oops, I just suddenly realized we need the roof reshingled immediately!”), well, that’s a different story.

I should have said that my comment above obviously doesn’t apply to everyone.
If you are in an unstable, unpredictable job, perhaps a large emergency fund is more appropriate. But for most people, insurance, lines of credit, and RRSPs for truly large long-term emergencies will probably do the trick.

My hubby is American and one of the major reasons we are here in Canada is because of the health care. As someone who had been warned about the dangers of “socialized” medecine he is a 100% convert. Plus even though he made good money in the States when you factor in the additional cost of health insurance there he would actually make more money here.

He was very impressed with my wonderful care when I was pregnant. I had to have 11 ultrasounds, two specialists, one for gestational diabetes, a nutritionist, an OB and of course my family doctor.

You are also right about the safety net which I also had to use at the time. Our government rocks as far as protecting people against “stuff” I had a horrible boss right before I started my own business. I found out he was significantly shorting the pay of other staff. Then he agreed to lay me off. He wouldn’t give me my last paycheck or separation slip. It took me months and months to get EI. Once I did I joined the SEB program which provides income support during the first year of business and instruction about business planning.

All in all it would be nice to have a better financial cushion myself, but any one of these life events I have endured would decimate even the most frugal person’s savings.

Even now I find that it is very difficult to save ahead simply because I don’t make enough yet to get ahead. Frugal Trader has it right… there are two aspects to saving. You must be frugal and you must make a decent chunk of change to start with. Onwards and upwards every year I am in my business I make more money and learn more about being a better business person.

Andrew, i’m with you, Kathryn has been a great addition to the MDJ team.

Bob, as you mentioned, emergency funds really depends on the situation. For example, an entrepreneur should have sufficient funds to hold him over during financial valleys.

Excellent post, once I read first paragraph I knew it was from Katheyn. Thank you FT for wonderful website I am learning alot.

We have a fairly large EF – $20k which is about 5 months expenses. It is in a “high” interest TFSA savings account at ING.

There were some layoffs at my company so last year we doubled the EF to $20k.

I don’t think we will increase this anytime soon – we want to pay the mortgage off/max out rrsp etc so that’s our plan.

Bob, as you mentioned, emergency funds really depends on the situation. For example, an entrepreneur should have sufficient funds to hold him over during financial valleys.

Agreed. The problem, as I see it, is that most recommendations to have a big emergency fund don’t qualify themselves either; it is presented as a “standard” necessity.

I don’t think a big emergency fund is a standard necessity at all. Especially if you are keeping a big emergency fund instead of paying down debt or maxing out RRSPs.

Short of losing your job, what is the largest unexpected non-insurable expense that could come your way that you wouldn’t be able to quickly pay back on HELOC? Furnace? Leaky corner of your roof? [If your entire roof goes at once, it is almost certainly insurable or just poor foresight]. That should be your guide for how much to keep aside.

3-9 months of expenses for most people seems like overkill, and it costs you financially because of lost opportunity costs (e.g., pay down debt, tax break from RRSP, etc.).

Short of losing your job

That is the one and only reason I have an emergency fund. Why are discounting this possibility?

I’m not discounting it at all. But unless you think there is a very good probability it is going to happen, why not keep the funds in an RRSP where you realize immediate tax benefits as well as tax sheltered growth? If you are keeping funds outside of tax sheltered vehicles and in highly liquid instruments, to insure against a very remote possibility, you are “over-insuring” yourself at significant costs.

Now, if you are in a position where job losses are more likely than not, and in a position where you think it would be very difficult to find a new job quickly, then perhaps you want to keep more funds aside.

But I’d submit that this is not the case for most people. Most people have very stable jobs and/or would be able to find work quickly if laid off. In the extremely rare instance when they do lose their job, and EI plus reducing your savings rates, etc. are not sufficient, then you have a real emergency, at which point you can tap into your RRSPs.

The only downside is that you will have burned contribution room. But for most people this isn’t an issue for two reasons. First, as mentioned, because the likelihood of needing to raid your emergency fund is pretty low, and second because most people have not used their entire contribution room anyway,

I agree with Bob. People so often put an arbitrary amount on emergency funds and claim that amount should be blindly followed by everyone. But you need to evaluate your own situation.

Take my husband and I. We’re employed in very different sectors, so the chances of us both losing our jobs at once is small. Which means our EF doesn’t need to cover ALL of our monthly expenses. Even if we did both lose our jobs, two EI cheques would cover just about all of our needs. In that scenario, our EF (worth 3 months of TOTAL expenses) would actually last us until after our EI runs out.

Not to mention, people with EFs usually have other liquid savings they can tap. I’d clear out my vacation fund if I needed to. And that would add another 2 weeks, but for the moment I don’t count it as emergency money.

Bob and Krista – you guys make some great points. Any “rules of dumb” regarding amount of emergency fund are probably bogus since they will only be appropriate for a certain segment of the population.

In my case I feel much better having a decent EF (which is in a tax-sheltered account) – we only have one income and my company had quite a few layoffs a while back.

I think the notion of “emergency fund” does not limit it to having cash in a low interest (or no interest) bearing account. The key to an emergency fund is having near-instant access to cash that can be converted to emergency funds as required. Whether this be cash in a bank account, liquid investments that don’t have a tax implication (such as RRSPs) or access a line of credit, it doesn’t particularly matter as long as your emergency plan is established and it makes financial sense for your particular situation.
For us, our emergency fund is our lines of credit (which we keep at $0). We have enough on tap for immediate use to carry us through a year’s worth of expenses, so this is our emergency fund. If an emergency extends itself for a longer period of time, then we can tap in to other sources of savings to keep the line of credit balance under control (or even back to $0, as circumstances dictate). I hate having idle cash sitting around earning little to nothing in interest (and interest is the worst form of investment taxation-wise, anyhow) when it can be put to work elsewhere for a higher rate of turn in a more tax friendly investment.

The key in any financial setup is to have access to LIQUID cash in situations where it is required. Whether this be to cover emergency spending or even just to capitalize on an investment opportunity that comes along, having a certain amount of your investment portfolio in liquid assets is very important. A lot of Americans learned this painful lesson over the past couple of years when their houses became illiquid (hard to sell) and worth much less. We can probably survive for 4-5 years before we’d need to look at real estate as a source of funds.

You do realize that this wonderful Canadian safety net comes from your tax dollars right?

And that the debate on being denied for pre-existing conditions is null and void once you consider the logic of purchasing car insurance after you wreck your car.

The argument is on cost. If left to the free market where people knew the prices of health care services instead of just passing their employer-based insurance card across the counter and then the costs up the chain (thus no downward pressure on prices) as opposed to the corporatism as it currently stands, there would be plenty of options for everyone: all income levels, conditions, races etc.

Why not eat healthy and exercise and have an insurance policy for catastrophic events? Instead, we live in an age of the proliferating welfare state where someone else will always pay for everything under the sun. Everything is backed by the federal government. Just keep printing money to pay for it and adjust the quality of those guaranteed services accordingly as the value of that money declines based on its debt-to-GDP ratio.

And here’s a concept. I don’t think that people are THAT stupid that they need the government taking their money before they earn it to put it into a retirement account pool for them and the rest of society. There is a concept known as a savings account and a force known as compound interest. But I guess with a cradle-to-grave guarantee on every service under the sun for every segment of society at all times, why would you bother to learn about the true history and value of money?

Interesting debate about the emergency fund. We currently have 3 months worth of expenses in a TFSA but I’d like it to be more. We do use it as a slush fund of sorts but not in case we accidentally spend more. It’s more for times when we need to borrow from ourselves for things to avoid taking out a loan (a new furnace, car, water softener, new roof, prescriptions, house repairs and renovations, dental work, prescription glasses, braces etc). We live on a highly fluctuating variable income with no extended health benefits.

I think of it more as a healthy savings account. The bigger it gets, the more secure I feel. Sure it’s only making 3% at ING but the 3% is worth the peace of mind I can buy with it.

I think an emergency fund is of utmost importance when it comes to finances. Everyone who is able to needs to budget in a financial safety net account because things will definitely come up where you will need that money. For me personally, I had this experience when my car broke down and it cost over 1K to fix it so thankfully I had my financial safety net to fall back on. If I didn’t, I probably would’ve had to take out a loan and pay interest as well…

In general, a good goal is to aim to build a savings that will equal three to six months of your living expenses. To get there, you will need to analyze your spending and saving habits, look for opportunities to cut corners and make progress, and make sure you have the insurance protection you need along the way.

I don’t think there is any problem with having a generous emergency fund, depending on your overall plan. During a disaster, the last think I would want is a line of credit, so having cash on hand is reasonable. Overall, 9 months worth of expenses isn’t really that much (in the big scheme) of things anyway.

Interesting article… I find keeping money invested (or in my investment portfolio) is best for me. The only money I have invested is money that has gained; therefore, if it is a true emergency and I need it immediately, I can sell a stock and take a profit and still cover my needs. The worst feeling is when you’re money is tied up, but down in the dumps.

– The idea of an insurance company, who’s best interests will be served if they don’t pay me, having any say in my care at my most vulnerable is chilling.

Every single industrialized nation has universal health care that is paid for by the state. And guess what it doesn’t cost more. It costs less.

It’s really a travesty. I don’t understand why every single American isn’t protesting in the street.

While you quiver in fear at “socialized” medecine, you drive on socialist roads maintained by socialist workers. If you have a fire, watch out because the socialist fire department is coming to put out the flames. Your army is the arm of socialists too. Their pay comes out of your taxes.

Here in Canada most of us are happy to pay a little more to take care of our fellow man so that he can take care of us when we get sick. We get a great deal in the bargain because we pay half of what you pay and get the better care.

Very good points you’ve brought up there, Kathryn. Emergency funds are certainly important. Like Dr Stock, I depend on stocks. If you play the cards right, it can work out.

Till then,


Justin: Your comment is where I thought many of the comments would go. It was interesting to watch the discussion go the way of the emergency fund rather than the real cost of a government sponsored financial safety net. Good thoughts.

I find this debate about the size of emergency funds interesting.

I’m not exactly sure if my cash in high-interest account officially counts as emergency. Part of it fulfills my cash allocation in my portfolio, part of it is for expected expenses over the near 1-2 years.

I can only guess at the average income and expenses of MDJ readers, but I suspect 3-6 (even 9 months) or emergency funds isn’t a whole lot. Some of the arguments against holding that cash is (i) it is idle, (ii) it incurs tax liability.

Well for (i) we don’t know what other investments someone has, perhaps 100% of their other investments are small-cap oil/gas or metals exploration. Maybe they don’t need to have any more risk therefore cash holdings are appropriate. (ii) the tax liability on interest incurred on even $20k is not very much, and for me anyway, not worth worrying whether its inside my RRSP or not. Say your MTR is 50% and you earn 5% on your $20k – that’s $500, not pocket change, but nothing to sweat over.

Personally, I’d never keep ’emergency’ cash inside an RRSP or even a TFSA because I’ve got loftier expectations for my monies in those types of accounts. I’d never want to burn RRSP cap-room due to an emergency.

Who pays for all these services? Does each person have to pay taxes and if so, what percentage?

Pat- They couldn’t pay more than me- about 35% of my income goes to taxes after local taxes. That doesn’t include other taxes that graze by.
I have been hoping for universal medicine for a long time. Unfortunately, US didn’t get it with the last passage. I don’t know why small business owners aren’t dancing in the street- they get such huge breaks- leaving the middle class family EXACTLY where they were twelve months ago. I live socialized medicine because my husband served for 20 years in the army. I was hoping my children could find an easier path. They are not willing to just “hope” that good eating and exercise will keep them safe. They both have experienced some pretty major injury while playing sports or driving a car….
Thanks for the Canadian perspective.
Now, if the Medicare crowd would just unwind their hands from the steering wheel and let everyone in the country have what they have, we would be better off!

“Now, if the Medicare crowd would just unwind their hands from the steering wheel and let everyone in the country have what they have, we would be better off!”

Haha, couldn’t agree more with that!

Till then,


“I know beyond a shadow of a doubt that if my house ever burnt to the ground, my spouse died and I lost my job I have friends and family that would gather around me and support me throughout…”

I’m not so sure that would be the case for me – my family might avoid me altogether thinking I was cursed if all that occurred at once!

Similar to “bob”, I would use an untapped line of credit as my emergency fund. I don’t like the lost opportunity of having money sit there “just in case”. I’ve been very lucky as I’ve worked over 20 years at several companies and never been out of work once. Also, neither when single or in a relationship did I or my spouse suffer any medical condition which prevented us from being fully employed.

My wife said to me a few years ago that if things got really bad, we could always sell our house. And she LOVES our house. I think that sort of practical view came from being a single mother of 2 children for about 5 years, having to work 2 jobs, and live with family. We would have other avenues to look to should the worst happen – chequing accounts, non-registered account, RRSP’s, TFSAs – heck, even the RESPs.

I never carry a credit card balance while my wife isn’t so diligent but even so, she never lets it get out of hand.

Our situation is quite solid and that is because we conscientiously worked hard at investing: paying down our mortgage with tax refunds, work bonuses and raises; maximizing RRSP, RESP and TFSA contributions; and generally having a reasonable balance between discretionary expenses and income. That and the fact that we earn more than the average Canadian for our ages – consider that “investing” in our human capital by managing our careers.