If you are the breadwinner of your family then you should ask yourself the question, ‘Are you financially secure in the event of an emergency?’ Meeting financial obligations when you are in good health and are holding down a good job is easy. Imagine not having a stable job or steady income due to unforeseen circumstances. In such a scenario, an emergency fund can help you meet your financial needs.
What is an emergency fund?
Money set aside for unforeseen financial emergencies such as layoff and sudden illness is an emergency fund. If you have insurance for your medical expenses then that is good. However, what if you are laid off from work? In such a situation, an emergency fund serves as a financial buffer or a safety net that protects you from financially challenging times. Singaporeans over 20 years of age should start saving money and an emergency fund is a good way to go.
Related: Be Thrifty Now to Thrive in Your 30s
Advantages of having an emergency fund
You can say no to loans. With an emergency fund stashed aside for a raining day, you don’t have to become a debtor when you’re in urgent need of cash. Loans have exorbitant interest rates and it’s not something you want to deal with when times are bad.
This money will be really useful for you and your dependents, if it comes down to that. You don’t have to borrow loans or expect handouts from your friends. Something we all know is very painful to do.
If you ever decide that you want to take a break from corporate life, and go travel for a while or learn a new skill to make a career switch, you can do so without worrying too much. Your carefully saved emergency fund gives you that kind of independence, because you know that you won’t be left stranded with no cash for daily expenses.
How to build an emergency fund?
Keep your money liquid by putting them in high-interest savings accounts or Singapore Savings Bonds, so that you can have easy access to your funds at a time of need. Don’t use your emergency fund for anything other than emergencies. Create a monthly budget using your income and expenditure calculations. Stick to your monthly budget and you will be fine.
Related: How to Save Money For a Rainy Day?
A minimum of 6 months’ worth of your income constitutes an emergency fund. If you can afford to put aside more money, then there is nothing stopping you from doing so. You don’t have to build your emergency fund all at once. Start small, put aside a part of your income every month into the emergency fund.
Encourage your family members and friends to also build an emergency fund of their own. It is a wise way of saving your income for a rainy day.
Read also: Never, Ever Commit These 3 Financial Mistakes – And How To Fix Them
Have you started saving for your emergency fund? Share with us when you started in the comments!
The post Here’s Why You Need an Emergency Fund and How to Get Started appeared first on BankBazaar.sg.
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