Pre-planning is a key factor in getting through any problems encountered in life. This is also true when applied in terms of financial stability. No one could have predicted that the COVID-19 pandemic would have such far-reaching consequences, with people losing their jobs and facing financial troubles, especially those who did not set up an emergency fund. Hence, this highlights the importance of emergency funds in unfortunate circumstances such as this pandemic.
For those who are interested but have no idea how to build an emergency fund, here are a few emergency fund tips to get you on the right track.
1. Analyze your income and spending
Before starting an emergency fund, you first need to know your spending habits and breakdown. Categorize your expenses and keep track of how much you spend on food, transportation, utilities, entertainment, and so on. It is important to analyze how much of your salary goes towards needs vs. wants. Once you have that figure, it will be easier to deduce how much you can save comfortably each month and where you may need to reduce spending.
2. Set a goal for your fund
When setting up an emergency fund, it is important to ensure that you have a goal in mind. Having a clear goal and something to work towards will keep you motivated to save. When starting out, keep your goals tangible and easy to achieve, and gradually work your way up to bigger goals. A typical emergency fund should cover about 3 to 6 months of your monthly expenses, so keep that in mind when setting a goal for your fund.
3. Save unexpected or extra income
All or part of any unexpected income should be funneled towards your emergency fund. Unexpected income can mean money you did not expect to get in the form of an inheritance, cash gifts, winning the lottery, and so on. Income tax returns and bonuses are also considered extra income, and should also be used to build up your emergency fund.
4. Make a plan and stick to it
Building up your emergency fund requires proper planning and discipline. Create a separate account to deposit your savings. This account should remain untouched unless there is an emergency. Automated payments to this account can help to reduce the temptation to spend. Prioritise your future and financial stability before thinking about spending your money.
Keep yourself covered during emergencies with our emergency fund tips and upcoming Singlife Plan & Protect App. Be one of the first to find out