Due to the unpredictability of life, it is practical to set up an emergency fund sooner than later. This should serve as a cushion when surprises come your way whether it is a medical expense, minor repairs in the house, or perhaps your rental payment and utility bills that must be settled right away.
Sadly, saving money – and a good amount of it – can be challenging to do in Singapore. The cost of living and the stagnant wages can make it tough for Singaporeans to build their emergency fund. This is why they end up consulting a licensed moneylender in Singapore for their urgent expenses since there is not much to get from their bank account. They may choose to take out a personal loan Singapore banks and moneylenders offer, even if the interest rate can be a little expensive. To them, this is their way of getting by life’s tough surprises when their finances are insufficient.
But you see, you do not always have to rely on moneylenders Singapore citizens and permanent residents tend to run to for their emergency needs. If you have an adequate amount of money in the bank intended for urgent needs, you should be able to manage your finances and overcome difficult money issues. This is why the challenge is for you to work on setting up this ever-important fund for you and your loved ones.
Emergency Fund – Why You Need One
We are only human, and we can never tell what the future may bring us. You may have everything all figured out at the moment, or things may be going well right now, but just a single, life-changing major event in your life can drastically push you to your limits. It may be a sudden unemployment, a serious medical operation, or similar situations that can easily drain your savings. With this in mind, having an emergency fund can be your financial buffer that will protect your wealth from such major crises. You may have a MediShield that can cover a percentage of hospital expenses, but a co-insurance and deductible will still need to be paid. Also, if you have to stay longer in the hospital, both your savings and MediSave may be drained almost in an instant. Retrenchment is another challenging situation that can cause you to worry about keeping up with your expenses. Having an amount saved that is a minimum of 3 months’ worth of your expenses should help you stay afloat until you can get back on your feet and find another job. Any existing or sudden auto and home repairs can also be expensive. But, if you have an emergency fund, you can get the money from this type of savings to cover all expenses involved with these issues.
Determining the Amount Needed for an Emergency Fund
If you are wondering how much you should save for your emergency fund, the answer is essentially up to you, with considerations to your lifestyle, expenses, and state of life. For instance, if you are single, then you do not have to worry about setting up another emergency fund for a family member. This is, of course, not the case with married individuals with children. The amount of money also depends on your income source whether you have a variable or a fixed salary each month.
In the case of people who make the same amount of money monthly, it is easy to know how much you can save for your emergency fund consistently. Having an understanding that you receive a consistent sum of money for your paycheck enables you to determine how much of it should go to your bank for emergency use. This is why if you have a steady and regular stream of income, you may want to think about building your emergency fund that is equivalent for 3 to 6 months of your expenses. The amount should cover your credit card payments, groceries, utilities, transportation costs, mortgage payments, and insurance premiums. If you have other expenses, be sure to factor these in when you decide on the amount to save. In simpler terms, if you are making $3,000 monthly, your emergency fund should be about $9,000 or even up to $18,000. These figures should help you get by without a problem if difficult financial issues come along.
But then, the challenge gets tougher for those who are making a variable or unsteady income. There are people who earn more on a given month, but lower on another month. The varied income per month makes things much more hectic for them. They need to prepare more for the possibility of suddenly losing their job or encountering a difficult issues that involves a large sum of money. Thus, the projected emergency fund suitable for these people should be 7 to 8 months worth of all their expenses. This is to say that an emergency fund amounting to $17,500 to as much as $20,000 is good enough for people with a varied income. But keep in mind that this applies to individuals whose expenses per month are a total of $2,500. The higher your monthly expenses, the more you should plan on building your emergency funds.
Guide to Building an Emergency Fund
So, how can you get started with setting up your emergency fund? It is not very difficult to do, as it is all about being aware of your needs and the amount of money that relate with these. You should have a goal before you get started since this will motivate you to actually set it up instead of keeping on postponing it whenever you had the chance. Some individuals even consult a financial advisor who can guide them towards building up this fund the right way. If you have existing liabilities or even debts, you need to calculate the amount for your emergency fund to cover these expenses.
Just one illustration to think about is by analyzing your fixed income and the liabilities. If you are earning $5,000 fixed income per month, yet you have a total of liabilities at $4,500, you will only have $500 monthly for your emergency fund. Thus, if you spend little per month, having a $13,500 emergency fund should be good. By putting in $500 per month, a total of 27 months is necessary to save this amount. This should suffice for your needs, and a long wait is not a problem, as long as you get there.
Additional Things to Consider
Yes, it can be a little tricky to save for your emergency expenses. There are some unexpected situations that may come along, or you may not even be making much money to even start setting up an emergency savings. You may also be tempted to splurge on an item or use up your money on other things instead of saving it and letting your emergency fund grow.
A strong sense of discipline and a focused mind are essential when it comes to starting an emergency fund and accumulating a good amount of money in the end. You must have a goal in mind and always look back to realize what matters most in your life. While it may be fun to buy more shoes, clothes, or even things you do not need, securing your future is still more important. If you have children, all the more should you be determined to save the amount you need for emergencies.
In case you feel that you are not making enough each month, there is always the option to get an extra job on the side. Simple jobs that you may add to your regular job can help you make additional money for your emergency fund. Reducing your expenses can also help, as well as setting a budget for your food, entertainment, and other needs. Once you have a budget in place, make it a point to stick to it to let you attain your target amount for your emergency fund. Soon enough, you will have more than what you need, so you can enjoy life more each day.