Episode 243: Emergency Fund vs HELOC: How Much Liquidity Should You Keep?

Listen here on our website:

Or jump to this episode on your favourite platform:

Watch Now!

Are you holding too much cash “just in case” — and missing bigger wealth-building opportunities because of it?

Most Canadians start with a simple emergency fund. But as your net worth grows, your “wealth reservoir” gets more complex — and more powerful. The problem? Many people never redefine their number. They double-count safety, sit on excess liquidity, or stay overly conservative without realizing it. Meanwhile, others jump into advanced strategies before they’ve earned the right to. If you’ve ever wondered whether your cash buffer is too small, too big, or just inefficient, this conversation will challenge how you think about financial security and opportunity.

In this episode, you’ll learn:

• How to clearly define your personal “tier one” emergency number — and why it should evolve over time.

• When excess liquidity becomes “gravy” that can strategically supercharge wealth through smarter moves.

• How your asset mix (real estate, ETFs, leveraged investing, business ownership) changes the size and role of your reservoir.

Press play now to rethink your wealth reservoir and discover whether you’re protecting your future — or unintentionally holding it back.

Resources:

• Ready to take a deep dive and learn how to generate personal tax free cash flow from your corporation? Enroll in our FREE masterclass here. 
• Book a Discovery Call with Kyle to review your corporate (or personal) wealth strategy to help you overcome your current struggle and take the next step in your Canadian Wealth Building Journey!
• Discover which phase of wealth creation you are in. Take our quick assessment and you’ll receive a custom wealth-building pathway that matches your phase and learn our CRA compliant tax optimized strategies. Take that assessment here.
• Dig into our Ultimate Investment Book List
• Follow/Connect with us on social media for daily posts and conversations about business, finance, and investment on LinkedIn, Instagram, Facebook [Kyle’s Profile, Our Business Page], TikTok and TwitterX.
  

Calling All Canadian Incorporated Business Owners & Investors:

Consider reaching out to Kyle if you’ve been…

• …taking a salary with a goal of stuffing RRSPs;
• …investing inside your corporation without a passive income tax minimization strategy;
• …letting a large sum of liquid assets sit in low interest earning savings accounts;
• …investing corporate dollars into GICs, dividend stocks/funds, or other investments attracting cordporate passive income taxes at greater than 50%; or,
• …wondering whether your current corporate wealth management strategy is optimal for your specific situation.

Building long-term wealth in Canada starts with understanding your wealth reservoir — the liquidity that powers both your emergency fund and your opportunity fund. As your net worth grows, smart financial planning requires shifting from basic financial buckets to advanced financial strategies like tax-efficient investing, RRSP optimization, capital gains strategy, and corporate wealth planning. Whether you’re focused on real estate investing in Canada, corporation investment strategies, or balancing salary vs dividends in Canada, strategic investing and proper liquidity management are essential for financial freedom in Canada. From personal vs corporate tax planning and business owner tax savings to estate planning in Canada and legacy planning, the goal is clear: align your Canadian wealth plan with a long-term financial vision that supports passive income planning, diversification, and sustainable financial independence — without sacrificing a modest lifestyle or early retirement strategy.

Transcript:

Kyle Pearce: Hey there, Canadian Well, secret seekers. Today we’re gonna be digging into an idea that comes up a lot on client calls, but it’s not just client calls where this conversation comes up. It actually comes up a lot between John and I, well as, yeah, exactly, which has inspired this to take place. And also Matt.

Jon Orr: Well, we just had a conversation.

Kyle Pearce: You all remember Matt Bigley from the beginning of the episode. I had someone recently say like, where did Matt go? Are you guys like not, you know, friends anymore? And it’s like, no, no, he’s he’s busy guys. He’s doing great in real estate. And him and I still meet me weekly to discuss our real estate portfolio as well. And, you know, we’ve all been having this conversation about the wealth reservoir. Now, you know, if you’re new here, you know, let’s quickly like, yeah, we’re going to dig in, talk a little bit about what wealth reservoir is.

Jon Orr: show. Okay, then. Right, let’s talk about it.

Kyle Pearce: For us, like, and it shifts over time. And today’s episode is gonna be talking about like the later shifts more so than the early shifts. But typically your wealth reservoir comes up usually as an emergency fund as the beginning, right? Like it’s sort of like that extra money you’re kind of socking away, like you’re not ready to like let go of it and put it into a long-term asset or invest it. You’re kind of sitting on it just in case over time, many Canadians

and probably quite a few Canadians that are listening to this show, if you did want and transition into a primary residence, a lot of times that like wealth reservoir might shift into the actual equity in your home. And then you might have access to that equity through say a home equity line of credit or some sort of line of credit acts as a lot of people’s wealth reservoir. And of course, if you’re an incorporated business owner or

Jon Orr: Yeah. cash.

Kyle Pearce: If you’ve been accumulating assets over time beyond just the traditional primary residence and your registered buckets, you also may have or heard or explored the idea of using a high early cash value insurance policy as the wealth reservoir. And really, regardless of where these dollars sit, high yield savings account, GICs, money markets, equity in your home that’s accessible through a line of credit or a high early cash value insurance policy, the key here is that there’s liquidity in that wealth reservoir to help you again, early in the journey through like emergencies might just be through like, you know, car breaking down, right? Tier one, as we move up, it might be through investment opportunities, right? Like we’re in a situation where, hey, I want to be able to dig in so I can take advantage of a big market dip like you might have seen back in, you know,

Jon Orr: Mm-hmm. Yep, that’s tier one.

Kyle Pearce: March and April of 2025 or even more so back in March of 2020, for example. And then eventually we’re looking at using this wealth reservoir as essentially a bucket that’s always there, always available and ready to go if we ever need it, emergency investment or otherwise. So what we want to talk about though today is filling up the wealth reservoir and then kind of addressing

Jon Orr: Yep, that’s tier two.

Kyle Pearce: what that might look like and sound like for different people in our audience, including ourselves, because I’m going to argue that the amount that you need in that wealth reservoir, it is going to be dynamic and it is going to shift over time, especially as your net worth changes over time. So it’s really important as we design this that we’re always coming back and sort of like getting back to square one to recognize and then looking far out to say like,

Jon Orr: Hmm. Right. Yeah.

Kyle Pearce: Is this wealth reservoir is that amount of liquidity still appropriate for me? Is it too big too little? Where am I at? And then what do I do once say that wealth reservoir starts to maybe overflow meaning there’s too much liquidity in there. What’s the next move at that stage?

Jon Orr: Yeah. Exactly, exactly. that’s sometimes, like this is sometimes where we struggle with thinking about the reservoir because traditionally you’re thinking the reservoir is your portfolio. Like you can think about that. That’s like the tier two version of your portfolio is like you’ve got your emergency fund, but then you go thinking, okay, now I’m filling my tax-free savings account. I’m filling my RSPs. I’ve got non-registered funds. Like I got this growth happening here. And technically, that space is your reservoir because also it can act as an emergency fund over there as well. If you think about like, I’ve got cash over here or my HELOC is my emergency fund. And this is where I ran into trouble for a while, right? Like I think I still struggle here. And this is where this conversation was sparked between us this morning, which was, I think I’m double covered. You know, like when I think about my emergency fund, it’s like, wait a minute. I think I haven’t been using

Kyle Pearce: Mm-hmm. Hmm.

Jon Orr: my assets to supercharge, which is like the spillover you talked about, you know, that I could be. And I think I’ve been too safe in a way because of the assets I currently have. So let me back that up for a sec because the way that we think about the reservoir in terms of the tiers, if you go like tier one is the emergency fund, tier two is your growth fund, and then tier three is really the strategic liquidity that you could be putting to use. We’ll talk about that in a sec. But really what you’re trying to do is you’re trying to figure out first what is the emergency number. And for everyone that’s going to be different and it’s a hard thing to do. It’s a hard thing to figure out like how much money do you have for liquidity? So sometimes the general easy way to do that is to go all the equity in my home is my emergency fund, no matter what. Like it’s just like, I don’t touch it because it’s like, if I need to borrow against it for an emergency, like I lose my job or market crashes, I can still live my life.

Kyle Pearce: Yeah.

Jon Orr: And I think that’s the way that we typically think about them. But then what we started to think about is like, wait, wait, maybe there’s a way that that’s too much because it’s like, wait a minute, but I’ve also been doing tier two reservoir is I’ve got money and investments and like, that’s for my retirement. But also it could act as your reservoir while you’re in your retirement growth periods, your accumulation period. Because if you really think about the number you’re going like, wait, wait a minute, what happens if I get hurt? Like, well, you have disability insurance. Hopefully you have disability insurance. And it’s like, but that number is all of a sudden, like your expenses, your lifestyle is now taken care of. You’ve covered yourself there. What happens if I die? Well, you probably have life insurance, you’re covered there. What happens if I lose my job and I can’t make money anymore? Well, that’s where your real number starts to come in to go like, well, what’s gonna make me feel safe? This is where we think about the HELOC.

Kyle Pearce: Hopefully, if not.

Jon Orr: But then I’ll go, wait a minute. I could earmark the HELOC to cover me, but it’s like, is that enough? Or is it too much? And what is the number there that I can say I can sleep safely at night knowing that that’s taken care of? And then the difference is now spilling into my strategic fund. And here’s what the economist would say, right? It doesn’t matter if it’s in the HELOC. It doesn’t matter if it’s in the RRSP or if it’s in the tax-free savings account in a way because time value of money, which accounts for interest and inflation, they’re saying those are just one big pot of money that you have access to. You could pull from it. It doesn’t matter whether you pull from the HELOC to pay a bill or you pull over here to pay a bill. There’s gonna be some costs associated with that, but it’s really all the same. That’s all your liquid money. And sometimes that’s the way we think about it. Where’s my liquid money? So that becomes my emergency fund.

So for me, it was like, I’m covered by my HELOC, but I’m also covered by my investment funds if this hit the fan. So now I’m double covered and I’m going, wait a minute. I could have all this time using the excess because I didn’t have that number in my HELOC to do more Smith maneuver moves, which now is my tier three wealth reservoir move, which is supercharging your reservoir, supercharging your investments, because I just wasn’t clear initially on what the number was.

So you gotta think of this as two different distinct stages. Fill to the number. When you know the number, figure that out yourself. Then the excess you should try to be strategic with because that now, think of it like gravy. You’ve already accounted for the other safety portion. You’re leaving money on the table by not doing those moves.

And this is why people reach out to us about the Smith maneuver because they’re already in that place. Or they reach out to us about strategic moves around getting their policy in place because it’s gravy money. I’ve got too much money. Now what do I do with that? That’s why we talk about policies on the show. We’re talking to those people that are like, I’ve already figured out my reservoir. My tax free savings account is filled, my RSPs are filled. What do I do now? These are strategic moves for tier three that play a huge role in supercharging your wealth.

All right, I’m gonna get off my soapbox here for a second.

Kyle Pearce: I love it. There was so many things you said there that resonated. One is finding that number. You need to find that number now. But when you come back to it later, it probably needs to change because things change over time.

We talk about alpha and optimization. When we say you should do something, it’s only if you want to take advantage of that opportunity. There’s arbitrage available to you.

As net worth grows, that number may shift. But we often assume no lifestyle creep. If net worth grows and lifestyle creep grows, spending grows. That means your safe number likely has to grow too.

If lifestyle stays stable and assets are diversified and liquid, that number might go down. But if you YOLO into leveraged Bitcoin like MSTR, that’s liquid but volatile. Your wealth reservoir number may need to be higher longer.

If you’re well diversified and liquid, some of those buckets can be part of your reservoir.

Real estate is illiquid and has capital expenditures. Even if cash flow positive, a furnace or roof can wipe that out. So heavy real estate investors likely need a larger reservoir than someone in diversified ETFs or a 60-40 portfolio.

Jon Orr: Exactly. You’re deciding your emergency number based on what you need to account for in your life.

Sometimes people say they’re too busy. If you’re too busy, maybe you’re not the optimizer. And that’s okay. But you have to decide if that’s a priority. If you don’t want to determine your emergency number and your excess liquidity for tier three moves, then don’t do the Smith maneuver. Don’t get a policy. They’re not for you unless you’re committed to understanding the why and the moves required to create the excess.

Kyle Pearce: Sometimes people think they have a tax problem when they don’t. If personal income isn’t high, maybe tax optimization isn’t critical.

This is why we talk to high net worth individuals and business owners. The complexity and optimization opportunity is greater.

Leveraged investing isn’t reckless when diversified. As wealth grows, leveraged investing becomes more important for tax efficiency.

As we build wealth and diversify across asset classes, emergency risk drops. The reservoir may shift from emergency fund to opportunity fund.

If you’re not interested in optimizing, that’s fine. But what if in 5, 10, or 15 years you change? Learning keeps optionality open.

This isn’t about doing it perfectly. It’s about understanding arbitrage and making trade-offs intentionally. There’s never a one size fits all.

Jon Orr: My takeaway is determine your tier one emergency number. Then decide your available moves. If you’re in tier one, build. If you’re in tier two, optimize. Tier three is strategic supercharging.

We have a YouTube video and blog post on the wealth reservoir. Head to CanadianWealthSecrets.com to learn more.

Kyle Pearce: It’s a constant journey and reflection. Learn the strategies. Don’t let FOMO drive you. Decide if and when something fits.

Head to CanadianWealthSecrets.com forward slash pathways to take the assessment. If ready to talk, head to CanadianWealthSecrets.com forward slash discovery.

And just as a reminder, this show is for educational purposes only. You should not construe any such information as tax, accounting, legal, financial, investment, or other advice. Kyle Pearce is a licensed life and accident and sickness insurance agent, has completed the Canadian Securities Institute course over at CSC, and is president of Canadian Wealth Secrets Incorporated.

Canadian Wealth Secrets is an informative podcast that digs into the intricacies of building a robust portfolio, maximizing dividend returns, the nuances of real estate investment, and the complexities of business finance, while offering expert advice on wealth management, navigating capital gains tax, and understanding the role of financial institutions in personal finance.

OPTIMIZE YOUR FINANCIAL FUTURE