What is an emergency fund?
An emergency fund (AKA a savings buffer, rainy day fund, last resort fund, uh-oh fund and oops fund) is something you set aside for sudden and unexpected major expenses that require you to use money immediately, for the preservation of your health, your loved ones or your assets. It’s intended to be used solely on worst-case-scenarios. 🆘
What it's not?
A pool of savings that can be used to purchase the latest iPhone, a new car, a college education, or “false emergencies” (like a last-minute destination wedding in Bali that you simply must attend)
A means to pay for predictable expenses, which are expenses that are predictable in nature but not in timing. For example, car and house repairs are unavoidable — you know they’ll come around eventually, you just don’t know when
A fixed amount. Emergency funds are based on your income and lifestyle, and may vary between individuals
Why do you need an emergency fund?
You want to be ready for any event that life might throw at you without having to rely on credit cards/family loans or other borrowing options that may cause added stress. For example:
If you lose your monthly income (Job Loss)
Unexpected medical emergencies (Accidents)
It’s important for everyone to have emergency funds, because nobody is free from life’s unexpected twists and turns.
How much money should you have in your fund?
Some experts suggest having a fully stocked emergency fund that covers up to 8 months of expenses. We suggest to smart small (so you don’t feel overwhelmed) and aim to cover a month of expenses, then slowly build your fund to 6 months. Start by saving at least 20% of your monthly income. 💰💰💰
Where should you keep it?
You may want to store your emergency funds in a separate bank from your main bank account to avoid temptations of using it for non-emergency expenses. *cough cough
Tip: Find a savings product with good returns and easy withdrawal to park your emergency funds!
How to build your emergency fund?
📝 Work out your budget - Be realistic about how much you can set aside each month, and be religious about not allocating the money for other purposes
💵 Save the moment your pay comes in - Make it a habit to move the money over to your designated emergency funds account before performing any other transaction. You can also opt for the foolproof method of automatic transfer!
🤓 Adjust as you save - Every 3 months, check back to see how much you’ve been saving and determine if you’re capable of saving more
Building up your emergency fund isn’t rocket science — it just takes a healthy amount of practice and some (much needed) self-discipline. Your future self will thank you for the wise money choices you make today!