Not many of us give much thought to the concept of emergency funds until we truly need it. However, that needs not to be the case because apart from the fact that these funds enable us to meet unforeseen financial bumps, they also go a long way in helping us overcome the anxiety that characterizes such times.
Basically, an emergency fund enables us to land on our feet when sudden and unexpected financial emergency such as medical bills and retrenchment come calling. For Singaporeans, the fund will ensure your financial emergencies are taken care of so much that you will never need the services of a moneylender in Singapore Read on to find out more on this fund.
So, Just What Is It?
An emergency fund is a sum of money that is set aside to answer for the unforeseen expenses in emergency situations. The emergency situation could be any unexpected event or circumstance that will put a heavy and urgent toll in money and time on the person involved in the emergency. Examples of such situations are sudden illness, a minor or major accident, a fire or sudden loss of job.
The purpose of the fund is to serve as a ready-to-use financial resource to tide the person over the emergency and enable him to resume the regular course of his life.
How Critical Is the Need for an Emergency Fund?
The fund is critically needed, considering the reality of present-day living being consumptive in nature and money as the main fuel that makes life move. Under normal circumstances where a person is earning and in good health, life is just an ordinary, routine grind, and for as long as the work is there and the body is kept fit, everything would be fine.
But life is not perfect, and at any time, things could go wrong, as Murphy would predict. Life itself is a resource faced with risks of various kinds. Emergency situations are examples of such risks that can put a sudden heavy squeeze on our finances. Most especially if we are the breadwinner with family members totally dependent on us for financial support.
What Happens If There Is No Emergency Fund?
If no fund is available and an emergency occurs, only a few options are left. One is to borrow money from lenders such as banks and loan companies or individuals. There are a lot them, for instance, Credit Hub one of the top moneylenders
in Singapore. These of course carry interests until completely repaid. Another is to sell some properties to raise funds. The problem with this is that it is not that easy, more so instantly, to deal in properties. Perhaps, we can sell small household items such as laptops or smartphones or other household appliances.
Another is to ask for donations from friends and relatives, never mind whether this is undignified or not. What is important is we are able to source some amount to get us going.
Frankly, the implications of asking for help are very difficult to imagine. And if the only remaining choice is legal borrowing or selling of properties, we might as well learn the mechanics of a fund setup and go for it.
How to Start an Emergency Fund
First things first: how much should I set up? Financial experts recommend an amount equivalent to three to six months of monthly subsistence. For instance, if your monthly expenditure is $1500, a fund goal of $9000 would be a challenge for the next six months.
Of course, we need not put it up as a lump sum. We can gradually build it up as a regular monthly deposit based on our capability. To enhance our saving capability, perhaps we may evaluate our spending patterns and identify areas where we can generate some savings to add to the monthly deposits.
One sensible suggestion from a financial advisor is to open a savings account in our name and label it as “Emergency Savings Fund” with notes inside the booklet emphasizing that withdrawals would only be on emergency cases.
Saving for the Fund
Preparing for an emergency and setting up the fund for it is a very logical step towards having a complete financial program
for the family. Every breadwinner has to have this overall financial program to make sure that every period in his life may be celebrated as a successful milestone.
Using the emergency fund as a stepping stone to designing an overall plan creates a platform that every member of the family will be inspired to follow. Consequently, it seeds the highly admirable habits of savings discipline and stewardship of gifts and talents. The positive effects of these habits are beyond measure.
The Primacy of the Emergency Fund
Getting started with an emergency fund is actually a challenge for all. Putting aside money that you cannot withdraw at will removes the inspiration from the act of making deposits. It goes against the human psychology of instant gratification where we derive extreme pleasure translating the income we receive into experiences of enjoyment, physical comfort and reward.
One way to work around this psychology is to consider the emergency fund as a component of our “Investments” so that we are freed from the withdrawal prohibition for emergencies only and go for the more elevating “investing considerations.” We can now look at continuing the fund accumulation even after we have completed the goal of $9000, and be primed to look for more productive placements for our money.
It means that we can now siphon anything in excess of the emergency fund of $9000 into potentially high-earning placements. Of course, this “Investment” heading should now include complete insurance coverages where these are necessary.
It must be noted that the $9000 emergency fund remains as a primary fund and stays intact and unwithdrawn with interests until an emergency occurs.
Life Without Fear
When we shall have completed setting up our emergency fund of $9000, we automatically attain a level of confidence in the future, that in case of any emergency, we need not run around looking for the money to tide us over. Not from the moneylenders in Singapore.
If this pre-occupation to emergencies has awakened us to the need and importance of the other elements that pose risks to our decent survival such as health, death, disability, old age, and retirement, the more we are confident that we can survive with grace.
We are thus in a position to live life in peace, knowing everything is well arranged, no worries about house repairs, medical emergencies, auto repairs, retirement. We can thus continue to lead a life without fear of the future, though it may be uncertain, because the risks have been addressed.