Singapore is one of the world’s top savers. World Bank data shows that Singapore saves 54.5% of its Gross Domestic Product. But that does not mean that the average citizen saves the same amount.
In a survey of 2,000 respondents by the Oversea-Chinese Banking Corporation, only 42% are on their way to being financially capable during an emergency. Only 51% have savings for up to six months.
An emergency fund will save you against sudden expenses and lowers your risk of going into debt.
What Is An Emergency Fund?
An emergency fund is money used to help cover unplanned financial problems. These include a major house repair, a debilitating car accident, or the sudden loss of a job.
Think of an emergency fund as an insurance policy. You set aside money for yourself instead of paying premiums, and you could use this should the need arise.
Why Do I Need An Emergency Fund?
Planning is the surest way to navigate around a financial setback. That plan will most likely involve putting an emergency cash fund in place. What are the benefits of having an emergency fund?
- The most apparent benefit of an emergency fund is that it will help you go through an unanticipated financial expense without having to resort to debt.
- An emergency fund will give you much-needed peace of mind. No person wants to live feeling that they are one late paycheck or one small emergency away from breaking down financially
- It gives you a little bit of freedom. Suppose you want to quit your current job because of the toxic workplace. Having a little extra cash allows you to do this since you have something to spend while looking for a new job.
- Sometimes, a large amount in your checking account will tempt you into buying more things. Separating that money from your day to day cash can limit needless expenses. But, an emergency fund is not all upsides. Here are some reasons why you might not want an emergency fund.
- Saving up for an emergency fund can take a long time. Financial experts often recommend saving for many months’ worth of living expenses. It could take months or even years to accumulate such an amount.
- When setting money aside for your savings, you have less money to use for other financial goals. For instance, you can use the money you saved for your emergency fund for investments with a high rate of return.
How Much Should I Save?
The right amount of money to save depends on your current financial circumstances. Financial experts often say that an emergency fund should cover at least three to six months’ worth of expenses.
This amount may seem large, but the idea is to stow away a small amount of money, say each week, until it accumulates. It doesn’t matter if you start small, just start the fund and work on building on it as time goes by.
How To Build An Emergency Fund
With the way the modern world goes, an emergency fund is now a necessity. A cushion against financial ruin is very much welcome, especially in today’s uncertain world.
Here is how to build your emergency fund
1. Crunch The Numbers
First off, you have to know just how much you need to save. To do this, chart your monthly expenses to determine how much you spend per month, then multiply it by six months. This is your goal.
This amount should cover all the necessary expenses and commitments you have. Critical expenses include:
- Food and groceries
- Utility bills, such as for water and electricity
- Mortgage payments, such as for a vehicle or house
- Government obligations, such as tax payments
There are also non-critical expenses such as costs for dates, movies, and hobbies. This could also form part of the list but would extend the time to complete the six-month cushion.
Then, break that large amount into pieces by having a weekly or monthly savings goal. Perhaps you aim to have $100 in that account by the end of the week? Or about $500 in a month? It is a great practice to break down that amount into more manageable numbers you can aim for.
2. Open An Account
An account for an emergency fund should be liquid and not have a withdrawal lockout period so that money is accessible anytime.
- A savings account would be an excellent place to keep your emergency funds. Your funds are available in case you need to use them, and you will earn interest on the deposits. Look for a high-yield savings account with little to no fees or balance requirements.
- Money market accounts are like savings accounts, with some offering higher interest yields. You can open money market accounts online or at a bank. They are easy to use, and the funds are withdrawable anytime.
- Certificates of deposit give a fixed return rate after a set amount of time. However, this arrangement ties up your money, and you will need to pay a fee to retrieve the amounts and close your account earlier than stated. Some opt for a “ladderized” approach. One applies for many certificates of deposit each with differing maturity dates, so that a part of the fund is free for use.
3. Automate Your Deposits
Put technology to work for you by automating your deposits.
If you have direct deposit at work, you could set it up to have a percentage of your paycheck automatically go to the savings account. Or you could set up an automatic plan that periodically sweeps a set amount from one account to another.
After a few weeks or months, you won’t even notice the amounts transferred from your account to your emergency fund account.
Sources For Emergency Funds
There are many sources you can tap if you want to finance your emergency fund immediately.
A Line Of Credit
A credit line refers to a kind of flexible loan from a financial institution. A borrower receives a definite amount of cash, and he can immediately start repayment over a specified time. A line of credit is useful to finance projects where the exact funds needed are hard to know in advance.
Credit Card Cash Advance
A credit card cash advance is an amount borrowed against your credit card limit. It works like withdrawing from an ATM, but instead of from your bank account, the cash comes from your credit balance. You have to pay the amount back with interest over time.
Instant Cash Loans
The financial technology industry is growing, and fast cash loans are among their most popular applications. Instant cash loans allow for quick and hassle-free loans.
It works exactly as a standard bank loan would; you will receive an amount that you have to pay with interest, but with the added benefit of easy application, less stringent credit checks, and fast receipt of cash.
Where To Get Quick Cash During Emergency Situations
There will be situations where you are in need of cash because of urgent causes such as an emergency. If your fund is not yet in place, then you may consider the services of accredited money lenders.
If you need the money immediately, then a financial institution such as Raffles credit would be your best choice.