An emergency fund can be the difference between a temporary setback and an unravelling financial plan.
Most advisors think of financial planning as a hierarchy of needs, with cash flow and basic living expenses forming the foundation. The next priority is financial security, mostly covered by emergency savings and insurance. While insurance typically receives significant attention, emergency savings are often overlooked, leaving this second layer lopsided. It’s time to even it up and ensure that saving for emergencies is implemented as frequently as insurance.
The consequences of not doing so can be significant. In fact, more than 40% of Canadians worry that even one major unplanned cost could derail their finances altogether, according to RBC’s Emergency Readiness Poll.
Despite the obvious need to save for emergencies, advisors often breeze past this. If the client says they have enough, many may not even confirm the amount. Failing to ensure your clients know how much emergency savings they should have, how long it should take them to build it up, and how they’ll fund regular top-ups puts their whole plan at risk.
Here are four challenges to focus on.
1. Clients underestimate how long it takes to build up enough emergency savings
When this isn’t emphasized, clients get the impression it’s unimportant. If you treated insurance with the same laissez-faire attitude, few of your clients would have proper protection. Clients follow your lead, so make sure they know how much to save and how to free up enough to save while keeping the rest of their plan on track.
One thing you can do is set realistic expectations. Help your clients understand that it will often take years to save enough for emergencies. For working clients, they should aim for six months of expenses. With a cash flow plan, you’ll get two important numbers —committed and spendable cash flow — which will help you calculate a more accurate emergency savings goal.
Committed cash flow is all the predictable monthly bills:, mortgage payments, investment contributions, TV services and utilities. A cash flow plan will help you generate a reliable total for those costs.
The spendable cash flow number is a recommendation that is unique to the client based on their financial situation. When you add your client’s monthly committed and spendable cash flow, and multiply that by six, you’ll get a more accurate emergency fund goal.
Assign some of the cash flow you’ve identified as available to an automated savings contribution. Figure out how long it will take your client to build up that much and make sure you share that with them. While the goal gives your client something to work towards, the most important thing is for them to set up automated savings so the habit is happening every month without them having to think about it.
2. Clients spend more using debt to pay for unexpected costs
Mathematically, it makes sense for most people to pay off credit cards, often at 21% interest or more. If people were calculators, that’s what they would do.
But prioritizing debt repayment while delaying regular savings for clients creates two problems.
First, they’ll have no choice but to put emergency costs on their credit card. This will make the client feel defeated. They’ll likely give up on their debt repayment goals and could make serious financial mistakes.
Second, most people will be less diligent about their total spending on unexpected costs when they use a credit card versus when they have to withdraw money that they worked hard to save.
Help clients understand that behaviourally, it’s important to build true savings instead of using credit. And help them decide on a process they’ll use to manage unplanned expenses due to emergency circumstances.
3. Saving for emergencies is a life-long activity
Even when your client meets their short-term emergency goals, they should continue to make a regular contribution to that account.
Rather than changing an important habit they worked hard to build, they can take any excess savings over their goal and spend it on fun things, or top up their long-term investments, for example.
4. Emergencies don’t end when your clients stop working
Even once clients are retired, building an emergency savings amount into their retirement income and continuing the habit of building up a liquid non-registered emergency savings fund is key.
Clients might think that emergencies aren’t a big deal in retirement. But retirement doesn’t eliminate emergencies; it only removes the risk of losing employment income. Your client’s roof doesn’t care that they are retired. Every other financial emergency besides job loss is still on the table.
Keeping this habit can also avoid unplanned withdrawals that could pull funds from an account during a down market, or trigger tax consequences if unscheduled withdrawals are made.
You probably won’t receive compensation for helping clients set up emergency savings. But these savings add value to a financial plan.
Regular savings habits will protect the plan and therefore protect the products that you do get paid on. This is one of the many types of advice that support the argument for fee-for-advice, allowing advisors to be compensated for advice rather than just product sales.
Leading by example should be a standard that all advisors hold themselves to.
This article was written by Stephaie Holmes-Winton, and first published in Advisor.ca on August 27, 2026
