$2,000 CRA CERB Show the Dire Need for Emergency Funds

The high cost of CERB clearly shows that most Canadians need emergency funds. With the program due to expire, the recurring dividend from the Toronto Dominion Bank is a fitting replacement.

| More on:

The massive takeout of the $2,000 monthly Canada Emergency Response Benefit (CERB) confirms the dire need for emergency funds. It appears people don’t have enough savings to cushion the COVID-19 blow. If not for the multiple, temporary federal aid programs, most Canadians will be in financial ruin.

Financial planners have a suggestion on how you can protect yourself from economic disasters like the current pandemic. The long-standing advice is to have an emergency fund that could cover at least three to six months’ worth of expenses. Aside from saving money, it would help if you considered stock investing to earn income on top of your savings.

A lifeline like no other

The 2020 pandemic is also an unexpected event but brings a more dangerous situation. Millions of people are losing jobs due to lockdowns and business closures. Suddenly, there’s widespread financial hardship. Families can’t hurdle the crisis without temporary financial relief.

Canadians are fortunate their government is able and willing to provide the much-needed financial assistance. There are emergency packages for workers, families, parents, seniors, students, and everyone who have urgent financial need during the pandemic. Companies and businesses have wage subsidies to keep their employees.

CERB is the flagship program and lifeline of displaced employees, workers, and self-employed individuals. When the crisis is over, it should dawn on people to practice the decades-old concept of building an emergency fund. Treat the fund as your insurance when a crisis goes down.

Gain an advantage

Financial advisers will tell you the bigger your emergency fund, the better. Your advantage with stocks is that you can use the recurring dividends for emergency spending while keeping the capital intact. A higher investment amount also means higher passive income.

Take Toronto-Dominion Bank (TSX:TD)(NYSE:TD), for instance. While there’s no 100% guarantee on future dividends, the second-largest bank in Canada has a dividend track record of 163 years. The illustrious feat gives you the confidence to invest in this bank stock.

Toronto-Dominion ranks number 25 in the world’s 100 largest banks with a market capitalization of $114.39 billion. In the 2008 financial crisis, it was the only Canadian company that reported growth in revenue and earnings. The current headwinds are fierce, but the bank should weather the storm anew.

Management expects the global economic downturn to affect the bank’s business and operations for the rest of the year. However, crisis management protocols are in place, and credit risk monitoring is ongoing. Still, Toronto Dominion should end the year with strong liquidity and funding positions.

Concerning potential income, Toronto-Dominion pays a hefty 4.98% dividend. A $25,000 investment is a good start and will deliver $1,245 in passive income. Your build-up can be gradual and not to the point of overfunding your emergency savings. Allow the money to compound substantially over time to reach your desired buffer.

Be headstrong

Emergencies pop up when you least expect them. Often, it messes up a family’s budget. The health crisis imparts a valuable lesson. If you have the propensity to earn, save whenever possible. A substantial emergency fund will help you become head-strong when financial disaster strikes.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Christopher Liew has no position in any of the stocks mentioned.

More on Dividend Stocks

Canadian dollars in a magnifying glass
Dividend Stocks

3 High-Yield Dividend Stocks That Are Screaming Buys Right Now

Are you looking for great income stocks? Here's a trio of high-yield dividend stocks that pay insane yields right now.

Read more »

Piggy bank with word TFSA for tax-free savings accounts.
Dividend Stocks

Transform a $5,000 TFSA Into a $50,000 Retirement Nest Egg

The TFSA is a powerful tool that can grow a small investment into a substantial retirement nest egg over time.

Read more »

A meter measures energy use.
Dividend Stocks

Is Fortis Stock a Buy, Sell, or Hold for 2025?

Fortis has increased its dividend annually for the past five decades.

Read more »

analyze data
Dividend Stocks

3 Dividend Stocks That Are Screaming Buys in November

Here are three top dividend stocks long-term investors won't want to ignore during this part of the market cycle.

Read more »

senior relaxes in hammock with e-book
Dividend Stocks

Generate $175/Month in Passive Income With a $30,000 Investment

Dividend aristocrats offer reliability, and many of them also offer generous yields. With sizable enough discounts, these yields can become…

Read more »

dividends can compound over time
Dividend Stocks

Best Dividend Stocks to Buy Now for Canadian Investors

These three stocks would be excellent additions to your portfolios, given their solid underlying businesses, consistent dividend growth, and healthy…

Read more »

data analyze research
Dividend Stocks

3 Undervalued Stocks to Watch in November

Not all undervalued and discounted stocks are destined or poised to make a comeback soon, and a protracted timeline can…

Read more »

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Dividend Stocks

The Perfect TFSA Stocks for Long-Term Growth

Two industry heavyweights are perfect stock holdings in a TFSA for long-term money growth.

Read more »