Emergencies are the inevitable, unplanned events that throw off both your plans, health condition, and finances. To make things worse, an emergency situation can be extremely expensive. Truthfully, even if you begin creating your own emergency funds Singapore, it cannot handle major financial situations. However, it’s great to have the money you can use within minutes during your time of need.
In this short guide, you’ll learn about how much emergency fund amount should you save, convenient bank accounts you can store them for future use and possible growth, and the perfect situations an emergency fund Singapore will bail you out of dire situations quickly.
1. Emergency Fund: How Much Should You Save?
Saving money has the goal of purchasing an item or making an investment in the future by the deadline you set. On the other hand, an emergency fund anticipates disastrous situations that can eat a huge chunk from your budget or month-to-month income. An emergency fund aims to cushion the financial impact of those situations with resolving it completely using the fund as a secondary result.
Money Under 30 recommends that Singaporeans create an emergency fund that contains a minimum of 6 months of basic living expenses. The higher the fund value you set aside, the better.
Six months in an emergency fund is enough to buoy those who’ve recently lost their jobs or have unstable income in their new occupation (such as freelancing or starting a new business). It’s imperative your rebuild your income before the 6 months worth of emergency savings expires.
2. Building Your Emergency Fund From Scratch
However, it’s correct to think that a six-month emergency fund will be sufficient for any situation. Truthfully, so many aspects will affect the total amount of money you’ll want to save in your fund.
Making a hierarchy of needs (you can use Maslow’s Hierarchy of Needs if it applies to you) is an efficient way to building an emergency fund in the best way possible.
One simple example is to add all items you can’t live without. For example, a bare-bones emergency fund total can be the following monthly costs for a family of four:
- Food: S $500
- Daily Work Commute: S $100
- Utilities S $200
- Monthly Rental/Home Loan Repayments: S $600
- Children’s Educational Fees: S $400
Adding all these amounts together will give you S $1,800 spending per month. Any household that has an average income of S $5,500 will have S $3,700 left to set aside for both savings and their emergency fund, such as S $1,850 respectively Aside from saving it for the future, the household is free to spend the remaining S $1900 on other essentials, luxuries, or other items and wants.
However, it’s vital they have S $1,800 to establish their emergency fund monthly. We highly advise saving at least half of the excess S $1,900 in this calculation for savings, which have a different purpose that we’ll discuss later.
3. Convenient Accounts Perfect For Emergency
What most financial experts say about saving money in your sock or piggy bank is true: money can depreciate in an instant, it’s best to put it in a future-proof account. Singaporeans have two accounts available from banks and financial institutions to safeguard their fund’s value effectively: savings account and low-risk portfolios.
Each one of these products are not profit-oriented investments. Their aim is to maintain the value of your savings accounts. Any additional value is a secondary objective. Therefore, don’t expect that the higher interest guarantees of savings account or low-risk portfolios will drastically increase your savings’ value after 1-5 years.
Every bank in Singapore offers savings account that provide adequate per annum interest rate increases of 0.25-2.00% yearly. UOB, OCBC, DBS, POSB, and other banks can provide you with different fixed-interest rate savings that are quite useful.
The main qualm most financial experts about bank savings account are its over-endorsement. Singapore banks, as with other banks worldwide, will try to lure you in with the high-interest rates their savings account offers have.
You’ll find it’s true — with a few caveats. For example, one bank might offer a gigantic 15% savings increase per year if your bank account reaches a threshold of S $500,000, which can be quite an impossible feat.
Banks offer savings account to help maintain your emergency gains’ value, especially if you won’t use it for 5-10 years. An alternative to them is low-risk portfolios. These function similarly to a savings account. However, instead of leaving your money in the bank, investors will use it for investment that gives you a modest interest rate.
In most cases, the added interest will give you a slightly higher addition than a savings account. On the other hand, it’s crucial to keep in mind once again that low-risk portfolios invest judiciously and conservatively. Therefore, it’s purely an accident if the fund invests in high-performing assets that drastically increase your fund value.
4. Emergency Funds: Critical Situations They Play a Huge Role
Even if you have a health card and critical illness insurance, both of these services can’t respond as quickly as money you can instantly withdraw from the bank. Furthermore, if there is more than one family member in need of medical treatment, emergency gains can help handle and cushion the expenses.
A six-month emergency fund is enough to tide anyone who is actively looking for a job after getting laid off. Truthfully, it takes less than 2-4 months for any active jobseeking employee to find gainful employment during this time.
Utility and Educational Bills Under Strict Deadlines
Sometimes, you might miss utilities once and forget them again until you see the next billing having two months’ worth of payment. This situation can happen with your regular loan repayments (which can gain immense interest if you leave it unattended) and educational dues. Emergency gains help you pay for these immediately to avoid possible or additional penalties.
5. When NOT to Use Emergency Funds
As its name implies, you should only use your emergency fund for dire situations that involve an enormous amount of cash you need to pay in the shortest time possible. Additionally, it’s different from savin because you can use your savings on the following items we’ll list below.
Sales and Promotions on Products and Services
Your emergency fund is for sudden expense spikes that are part of your needs, and not your wants. Therefore, you can use your saving to take advantage of sales and promotional discounts on select products and services. However, you shouldn’t touch your emergency fund — even if it’s beyond your six-month fund requirement.
It’s better to save up for your vacations rather than borrow money for it. However, if you’re prioritizing your emergency fund, you won’t touch it to finance your spontaneously-planned vacation.
Truthfully, the best approach to vacations is to plan them a year before. In doing so, you can make changes to your itineraries, save enough money, and have a more fulfilling vacation than a sudden vacation idea.
Down Payment for Vehicles and Properties
An emergency fund is not a short-term saving amount you can use to finance living expenses that you can afford outside an actual emergency, such as purchasing new vehicles or making new investments. The bottom line is, if it isn’t an emergency, it’s best to save up money for it.
Set aside and use your funds rather than an emergency fund to finance your vehicle, property investments, and other living expenses. In doing so, you have a clear picture that you have a safety lifeline when you have financial emergencies while you’re in the middle of paying your new investment using a part of your funds.
Venturing Into Commercial Businesses
Savings are a better option rather than using an emergency fund for your business plans. Even if your idea gives you complete confidence that you’ll turn a profit fast, your emergency fund is there to supplement your temporary unemployment while you work out your new business’ kinks.
Therefore, it’s best that you have enough funds to start your business. Truthfully, it’s better to start it with a business partner or solicit fiscal help from your family and friends to help you start your idea and return their investment (or just pay your debt to them) in the future.
Life is a Balancing Act. Your Emergency Fund is Your Safety Net
If you haven’t made your emergency fund yet, now is the time to do so, You’ll never know when you’ll need to fund an emergency. Furthermore, medical emergency situations can be quite expensive, and having emergency saving gives you a safety net in case your fiscal balance gets thrown off.