42% of Canadians say an unexpected expense could derail their finances: RBC poll

And nearly four in 10 households with incomes under $100,000 don’t even have an emergency fund set up to cushion the blow

We independently select everything we recommend. Buying through us may earn us a commission, which supports our work. Emergency expenses, such as a big medical bill or a costly car repair, are a significant threat to the financial stability of many Canadians, according to a survey released Thursday from Royal Bank of Canada.

About 42 per cent of Canadians worry even one major unexpected expense could derail their finances, according to the poll. And nearly four in 10 households with incomes under $100,000 don’t even have an emergency fund set up to cushion the blow. “I’m not surprised, but I am concerned,” said Ryan Gubic, a certified financial planner and the founder of MRG Wealth Management, based in Calgary.

“Over the past several years, the cost of essentials and living expenses in Canada have risen faster than household budgets can deal with.” With rising prices, Gubic said the proportion of Canadians struggling to fund emergency expenses could continue to swell in future years. Groceries, housing, gas and other items are taking up a larger portion of household incomes, said Gubic, leaving less money left over for savings.

He added that the mortgage renewal wave has been putting homeowners under pressure as well in recent years. “(These concerns) are not limited to lower-income households,” he said. Close to a third of households with incomes over $100,000 said they are one major unexpected expense away from going over the edge, and 75 per cent said the high cost of living is hurting their savings plans as well.

The top unexpected expenses Canadians are worried about include car repairs or other unexpected transportation costs (39 per cent), followed by home repairs (38 per cent) and medical or health expenses (31 per cent). Across all respondents, the high cost of living was the biggest factor making it harder to build or maintain emergency savings, at 76 per cent. But Albertan respondents (86 per cent) were most likely to cite cost of living as a deterrent, followed by Atlantic Canadians (83 per cent).

Gubic said this could be due to transportation needs in these provinces, with households there more likely to own at least one car. Alberta has seen rapid population growth in recent years as well, he said, which has raised housing costs and made it less affordable to live in. And in Atlantic Canada, average household incomes tend to be lower amid fewer job prospects, Gubic said.

Other reasons in the RBC poll preventing respondents from contributing to their emergency fund included saving for other priorities (55 per cent), finances being stretched too thin (45 per cent) and dipping into their emergency fund to pay for non-emergency expenses (29 per cent). The repercussions of not having an emergency cushion can include relying on credit cards or other debt instruments, Gubic said. Still, he said that while financial advisers typically recommend building three to six months’ worth of savings in a fund, such a target can feel daunting, especially for someone living paycheque to paycheque.

“Starting is the most important step, even if it’s $10 a month,” he said. “Maybe the first goal is to save one paycheque worth in your emergency savings, and the next goal can be saving one month of your living expenses.”