Stop Using Your TFSA as an Emergency Fund
If you're in your early 20s, I don't think you should be using your TFSA as an emergency fund. And here's why.
1. You probably don't need as much emergency savings as you think.
Your emergency fund should be based on your personal circumstances, monthly expenses, and financial responsibilities. You don't need to tie up thousands of dollars unnecessarily.
2. Being able to have easy access to the money matters.
An emergency fund should be somewhere you can access your money quickly and easily. A regular high-interest savings account makes a lot of sense for this. I use the Wealthsimple app to manage my emergency fund and sinking funds.
3. And probably most importantly, your emergency fund exists so you DON'T have to touch your investments when something unexpected happens.
Imagine the stock market drops 20%, and at the same time, you lose your job or have an unexpected expense. Now you're potentially forced to sell your investments at a loss just to cover your bills. That's exactly what an emergency fund is supposed to prevent.
Personally, I'd rather keep my emergency fund in a separate high-interest savings account and let my TFSA focus on what it's supposed to do —> building wealth over the long term.
Remember, your emergency fund protects your finances. Your investments help build your future.
