Badly enough, a survey says that 2 out of 3 working Singaporeans do not have enough emergency funds. This information is highly disturbing as it indicates how more than the majority of people in the country have failed to realize the value of an emergency fund. Emergency funds are, of course, not only essential to working individuals in the country. It is a type of bank account that is a must for everyone in modern societies.
What is an Emergency Fund?
An emergency fund refers to a bank account where users set aside money in order to cover large and unexpected expenses like medical emergency bills, appliance repair or replacement, major car repairs, unemployment, and many other else.
It is a personal budget meant for future problems and mishaps. It may come from your savings or other personal funds. You should dedicate your emergency fund only to unforeseen events and situations. You should not use this fund for some other purposes.
Why Do I Need an Emergency Fund?
Truly, all adults in Singapore need to set aside money for emergencies. It is the responsible thing to do especially if you have others relying on you. Without an emergency fund, you might not be able to afford the necessary medical and social services. But, building this fund is easier said than done. Remember that this process also has its downside.
One advantage of having this emergency fund is that you do not need to rely on high-interest loans like a credit card. Credit cards have a 24% annual percentage rate (APR) as well as compound interest. This means that borrowing a loan for big purchases or emergency bills could cost you a lot of money. Having a fund meant for situations like this could benefit your finances big time.
Another advantage is that you will be able to cope with a sudden tragic situation, like unemployment. Without an emergency fund, loss of income could force you to change your lifestyle. With emergency savings, you have the necessary safety net if something might come up. You have the money to ensure that your months’ worth of needs and supply are met.
On the other hand, trying to build an emergency fund could mean less money to settle your other loan obligations. Setting aside money on a regular basis can be financially challenging. It could mean that you have to funnel certain parts of your budget into your savings account. For example, instead of paying off credit cards or personal loans, you might have to put the money in your emergency fund.
Another disadvantage of building emergency funds is that it takes time before you can build one, especially if you have a limited stream of funds. The process can be tiring and disappointing. At times, you can find yourself using your emergency fund for your living expenses. All these meant that building an emergency fund also requires mental and psychology discipline.
How Much Should I Save?
Saving money is a personal and subjective process. We have our situation, which means that we can use our own approach to sustaining savings accounts. Despite this, know that there are tips and tricks you can follow. For example, take note that the rule of thumb is to set aside money with 6 months worth of your monthly expenses.
To compute your monthly living expenses, just add up how much you spend on food, utilities, and essential bills. This amount is the basic amount you need to survive in one month. You can then multiply this to 6, and that should be your target amount. The purpose of this is to make sure that even without money coming in, you can survive for the next six months – enough time for you to find a new source of income.
Where Do I Put My Emergency Fund?
The best place for you to put your emergency fund is a savings account with a high-interest rate. Since you are putting in a large sum of cash (worth 6 months of your living expenses), you want your cash to earn interest. Hence, you have to find the financial institution offering the highest interest rate. In Singapore, the best savings account for your emergency fund has an APR of .6 %.
Also, you must choose banks or institutions with a reputation. In terms of security, you have to ensure that the bank you chose can guard your funds against any physical or online threats. Remember that your emergency fund is a fruit of your labor and dedication—only trust banks with proven experience in handling your funds.
To choose a savings bank, you can opt to consult online resources that consolidate and compare banks’ services. Loan Advisor have done marvelous work in this area. They have an idea of the strengths and weaknesses of financial institutions and businesses in Singapore. Check out sites like this, so you have an idea of the trends and developments of the country’s entire banking and financial industry.
Effective Ways to Build an Emergency Fund
Now that you have a better understanding of an emergency fund, you have to know how to get enough savings. Here are some of the easy and effective steps in building an emergency fund. While these steps might seem minimal, remember that they could help you in your goals when done religiously. Do not be afraid to try and navigate other ways of saving up cash. You are the best judge of your finances.
- Calculate the total that you want to save. You need to determine your target amount so you can plan your spending habits. This will also help you make long-term goals. Without setting up a financial plan, you are more likely not to save enough funds.
- Set a monthly savings goal. To make the process less intimidating, you can create monthly, weekly, or even daily goals. You may also want to assess your daily expenditures to identify which spending you need to limit or control. These short-term goals will help you manage your financial goals easier.
- Keep the change. Save the change you get. While a dollar may not seem significant to you, collecting them could really help you achieve your financial goals easier. Remember that in building your emergency fund, every penny counts.
- Move money into your savings account automatically. One way to discipline yourself is to get your bank to deposit a certain percentage of your income to your emergency fund. In this way, you can make sure that deposit the necessary amount every time. You might need to get more information from your bank to know the details of such a financial arrangement.
- Assess and adjust contributions. If you receive a bonus or an additional income, you can add the amount you will deposit. Note that you can increase your monthly deposit, but you should never go less than it. It would help if you were consistent in your deposit amounts so that you can eventually reach your financial target.
Remember that while your financial goals are essential in building your emergency fund, they are just meant to guide you in your saving and spending habits. If you meet more effective ways and methods in the middle of this financial journey, do not be afraid to make the necessary adjustments. In fact, you must assess your goals and achievements often, so you know how far and how well you are going with your goals and objectives.
Do You Have an Emergency Fund Yet?
If you are like the majority of Singaporeans, you are more likely to have no emergency fund yet. Do not be afraid because you can start building it now. After making financial goals and plotting your plans in the next months or years, the next task is to identify a financial institution that could hold your emergency for you. Besides security purposes, you would also want to keep your funds to an institution with high-interest rates.
To help you choose which of the banks in Singapore is best for a savings account, check out the material posted on Loan Advisor website. We are a comparison financial site that has a list of major financial companies in Singapore and looks into their similarities and differences. We sure can help you choose the best bank or financial institution for your specific needs. Send us a message here, and we will respond to your queries.