Hope for the best, but prepare for the worst is a rule that should always be followed when it comes to managing your finances.

As Rob Carrick puts it: Think of an emergency fund as insurance against a short-term setback that affects your long-term financial goals.”

But building an emergency fund is notoriously difficult, probably because you put this as item #50 on the list of things to do. Instead, many people will use a line of credit or credit cards as an emergency reserve. However, going into debt for an emergency hardly makes a convincing argument for a good money habit.

2016 definitely seems like a good year to start that emergency fund. While Canada has been coping with the oil price shock, the impact of the fall in crude prices may still be felt for some time as its effects continue to unfold. With a downturn in our economy, low interest rates, high housing prices, and record household debt levels, 2016 would be the perfect year to build up that emergency fund. Many households simple don’t have enough saved to cove an increase in mortgage payments if interest rate  increased tomorrow.

Even if you don’t care about what the economy is doing, you’ll need to care about unexpected things in life – what happens if your condo needs a repair? your house needs a new roof? You lost your job? Health care emergency? Last minute vacation plans? Wedding gifts for your best friend? The list goes on and on.

Start by building the emergency fund in a savings account by making monthly contributions. Alternatively, you can build it much faster by setting aside lump sum amounts, such as your tax refund, or your work bonus. If you can’t find the cash to do this right now, then make a note to set aside any increase in salary into your savings account.If you make $100,000 now, and your salary for next year will be $103,000, that is approximately $155 net every month. Make it a goal to set aside the $150 into your savings. Otherwise, we are very good at making this $150 disappear, adding to our list of “miscellaneous” expenses.

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