Don't get caught in a financial downpour without your umbrella

(NC)—According to Murphy's Law, if anything can go wrong it will. Whether it's a car breaking down during rush-hour traffic or the furnace combusting in the middle of winter, we've all come face-to-face with Murphy's Law.

Saving for a rainy day is something all Canadians should do, but with debt and saving for retirement, Canadians often forget to save for life's little "surprises."

Linda Knight, President and Chief Operating Officer, BMO Mutual Funds, offers the following tips on how Canadians can effectively save for a rainy day.

Establish an Emergency Fund – Start contributing to an emergency fund as you would your retirement fund. A general rule of thumb that financial planners recommend is to set aside three months worth of living expenses for emergency purposes.
No Dipping – Although it might take discipline and a strong will, don't dip into your emergency fund to purchase unessential items like clothing or the latest tech gadgets. An emergency fund is for emergencies, and money should only be withdrawn in serious situations.

Make Your Emergency Fund Work As Hard As You Do – Instead of having your emergency fund sit idle in a savings account gaining minimum interest, invest the funds in a non-registered investment vehicle that guarantees the original principal while increasing the potential for growth. Starting January 1, 2009 such an investment could be held in a Tax Free Savings Account (TFSA). The TFSA will allow Canadians to set money aside in eligible investment vehicles and watch those savings grow tax-free throughout their lifetimes. Because you can withdraw funds from the TFSA at any time for any purpose, they are an ideal way to save for a rainy day.

"Many Canadians forget that non-registered investments can be a lifesaver during unexpected situations," said Knight. "I would recommend using a mix of GICs and mutual funds that can be accessed easily if needed in an emergency. "

To learn more about establishing an effective emergency fund, meet with a trusted financial planner at your local BMO Bank of Montreal branch for free. Visit www.bmo.com for more information.

Source: www.newscanada.com