"A penny saved is a penny earned", this highlights the importance of saving while also emphasizing the necessity of an emergency fund. With Singapore retaining its position as the world's most expensive country, having an emergency fund could provide reassurance in the event of a financial emergency.1
An emergency fund refers to a sum that is set aside and left untouched for unplanned expenses. This could include unforeseen medical expenses, the loss of a job or even used by your family to tide over difficult times. As such, it is essential that this fund is liquid and easily accessible to be withdrawn whenever necessary. In this article, we show you how you can build an emergency fund in just 3 simple steps.
(See "Start 2018 Right With These 4 Financial Goals")
Step 1: Your expenses
As an emergency fund is intended to act as your financial safety net for unplanned expenses, knowing how much you spend allows you to better determine how much your emergency fund should have. Start by tracking your monthly expenditure and any other recurring payments. Additionally, do also take into account any big upcoming purchases or life stage changes that may affect your monthly expenditure. This would then ensure that your emergency fund would be sufficient should you need to use it in the future.
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Step 2: Review your insurance portfolio
Next, review the insurance policies that you have on hand to see if your current policies can provide sufficient coverage in the event of a mishap. If you are adequately insured, you should be able to receive a lump sum pay out in the event of a critical illness, total permanent disability (TPD) or death. For Singaporeans and Permanent Residents (PRs), Medishield should also help to offset any hospitalisation or treatment costs. However, it is important to note that an emergency fund is not only intended to help your family tide over difficult times but also to help you with financial emergencies. For example, in the event that you were to lose your job or become temporarily unable to work, an emergency fund could then come in handy to help you tide over financially.
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Step 3: Establish your required time frame
While it is often advised to have 3 to 6 months' worth of your monthly expenses in your emergency fund, there is no hard and fast rule to this. This is because estimating the time required for you to recover from the financial situation may be more accurate in helping to determine how much your emergency fund should have. For example, if you expect yourself to take 3 months to look for a new job, then perhaps have at least 3 months' worth of expenses in your emergency fund. Alternatively, consider putting more into your emergency fund if you are the sole breadwinner of your family and have a house and car loan to finance.
(See "Want An Early Retirement? Find Out How Much It Costs")
How FSMOne can help you get on track
Our team of friendly advisers are able to help you review your financial objectives, long term commitments, and offer you investment and insurance advice specific to your needs. If you would like assistance in reviewing your financial and protection portfolio, or simply to get a quote for an insurance plan,
Available Products on FSMOne Insurance |
Term Life, Whole Life, Critical Illness, Annuity, Health, Endowment from Manulife, NTUC Income and Tokio Marine Life Insurance *Please check with our advisory team if the product you want is available on FSMOne Insurance |
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