I was hired by a private bank to conduct a workshop on financial basics for their affluent clients. One of the subjects I always cover in a financial foundations workshop is an emergency fund. It’s considered a must-have for most people but I questioned whether it was as necessary for the very wealthy. That is until I met Ruth* who approached me after one of my talks. (*name changed)

Ruth was in her mid-70s. Tears streamed down her cheeks as she confided that, once her husband passed away, she was unaware of how much money she had.

“We didn’t talk about finances at all.  When I would inquire, he would change the subject, so over the years I stopped asking. My husband was involved in many deals and was often very stressed about them. I never knew where we stood financially. As it turned out, when he passed, I finally discovered that he owned over $10 million in real estate holdings across the country. But none of them had my name attached. Until the will got sorted out, I had to go begging to the bank to help me.”

Ruth had been a homemaker and had no personal credit history. She learned the importance of having a personal emergency fund the hard way.

Everyone, regardless of net-worth, should have easy access to funds. Here four steps to create your own “break-in-case-of-emergency” account.

Life lines of the rich and famous

Emergency savings fund: Financial planning experts suggest that individuals have 3-6 months of their household income available in a secure and highly liquid account. However, you need to assess for yourself how much you would need to see yourself through such events as divorce, death of a spouse, family emergency, or health crisis. For some, a fund should cover more than 1-2 years of hardship without the need to dip into registered accounts or growing investments.

Line of Credit: If the amount you need is large, a line of credit might be a better alternative. You don’t pay any interest until you tap it. If you intend to keep a balance running, talk to your banker about the option of securing it against your home to receive the lowest possible interest rate. The key is to arrange your line-of-credit strategy before you actually need it. As Mark Twain quipped, “a banker is there to lend you an umbrella when it’s sunny and demand it back when it’s raining”.

Cash on hand: Most of us take easy access to funds as a given. However, it’s wise to remember that technological glitches, or even terrorist actions, do occur and may prevent you from accessing cash when you need it most. Always have cash on hand for these types of emergencies. If you feel uneasy having large amounts of cash at home, consider investing in a home-safe. A good rule of thumb: have enough to sustain you and your family for at least 3-4 days.

Supplementary credit cards: Ideally everyone should have at least two credit cards in addition to a debit card. As credit card fraud increases, banks are quick to shut access to your account if they suspect foul play. This could leave you without credit until the situation is resolved. This is inconvenient at any time but could be catastrophic when traveling.

Remember Ruth?  She thought she had her own credit card and was surprised to have the bank take it away as soon as her spouse passed away. Everyone should have at least one credit card in her own name. Even if it is not the “main” card, using it few times a year will help to build up your credit history.

Rainy day funds

So, whether you have a little or a lot, you need an emergency fund. In everyone’s life a little rain must fall— and we all need to reach for that umbrella.

Kelley Keehn is an award-winning author, personal finance educator and is the Consumer Advocate for the Financial Planning Standards Council (FPSC). She has written nine books on personal finance including Protecting You and Your Money; A Guide to Avoiding Identity Theft and Fraud and A Canadian's Guide to Money Smart Living. Kelley is the Marilyn Denis show’s personal finance expert, was the host of the W Network’s Burn My Mortgage, sat on the National Steering Committee on Financial Literacy, currently serves on the Financial Consumer Agency of Canada’s Consumer Protection Advisory Committee, the Ontario Securities Commissions’ Seniors Expert Advisory Committee, and is a member of the OECD’s International Network on Financial Education.