Saving for a rainy day: Build your Emergency Fund
Imagine that you find you discover that you’re being laid of work. Or, meet an accident while on the way to work. Either of these situations are unforeseen and demands that you have a large reserve of funds. Are you financially prepared for a rainy day? Do you have an emergency fund in place? These are the first questions all financial advisors ask their clients in Singapore. According to an article posted by MoneySmart, 9 out of 10 Singaporeans don’t have an emergency fund in place. Considering the global financial meltdown not having an emergency fund in Singapore is indeed a major financial mistake you could make.
An emergency fund is typically 3-6 months of your monthly income. It is an amount that can sustain you and your family in the event of a misfortune incident. No doubt you may have all your insurance policies in place but at times of distress, you need liquid cash that is easily accessible. At times your insurance may or may not suffice. For example, if you meet with an accident and fracture your leg, your health insurance will take care of your medical expenses, but what about the two months of unpaid work leave you will be taking? An emergency fund can come in handy at such times. Let’s take a look as to save for an emergency fund in Singapore.
Building your emergency fund
Spend less, save more
The best way to start saving for an emergency fund in Singapore is by reducing your expenses and saving more. Use budgeting apps like Spendee and Wally to track your expenses. Identify the places where you can cut down on your expense to save money for your emergency fund. Opt for credit cards and mobile wallets that give you the option for a cashback. Cut down on all kinds of wasteful expenditure, the less you spend, the more you can save at the end of every month.
Earn more, save more
If you find it difficult to save, then you might want to consider finding ways to increase your monthly income. In case, you have a full-time job, then maybe opt for freelance projects with the flexible deadlines. If you are interested in baking, then try making a few extra bucks with your talent over the weekends. Other ways of expanding your monthly income include, taking up a part-time job, tutoring, or selling your old furniture online. With an increase in your overall monthly income, you will be able to set aside a stipulated amount for your emergency fund.
Do a high-intensity savings programme
If you find it difficult to save a small amount every month, then try saving drastically over a shorter period of time. You can aim to live with 50 percent of your income for one year and include the rest in your emergency fund. This way you will be able to save 6 months of your income within a year. This might mean that you have to massively downgrade your lifestyle and minimize your expenses. Once you reach your goal, then you can start spending freely like the way you used to earlier.
Prioritise emergency funds
Simply wishing for an emergency fund will not be enough to build one. You will require immense willpower and determination to sacrifice unnecessary expenses to save for your emergency fund. This means after you set aside money for your regular monthly expenses like food, transport, and bills, you need to reserve some portion of your income for your emergency fund.
Grow your emergency fund
After you build your emergency fund that has an amount equivalent to six months of your salary, you need to find ways to grow that income. Make sure you put the amount in a savings account with high-interest rates. Avoid investing the money in the stock market as there is a high risk of losing the entire amount you have accumulated. And see to it that the amount is liquid and easily accessible since the fund is for emergency situations.
Places to keep your emergency fund in Singapore
Consider Singapore Savings bond
There are many places where you can keep your emergency funds. The Singapore Savings Bond is the most common option among all of them. The best part about SSB is that you can encash the entire amount at any point in time without losing the accrued interest.
Use a separate savings account
Another way of securing your emergency fund is by opening a separate savings account in a different bank for the fund and hiding the ATM card. This way the amount will be out of reach and you will be able to withdraw at the time of an emergency.
Save in US dollars
You can also consider saving the amount by converting it into US dollars. US dollars are the least risky currency. All you will have to do is open a multi-currency bank account that can hold different denomination of currency at the same time and save your emergency fund in the form of US dollars.
These were a few methods to ensure you have sufficient funds on a rainy day. So, how do you plan on building your emergency fund? Let us know in the comments section below.
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