A trip to the emergency room, unexpected home repairs, car problems, unplanned travel… all emergencies! These are some of the unforeseen circumstances that can put a drain on your hard-earned savings.
An emergency fund can help cover these unexpected costs without dipping
into your regular cash flow or running up debt with a credit card or financing.
So how do you start an emergency fund?
First, understand that an emergency fund is NOT
for planned purchases like a house, new car, college education and such.
a large, unattainable amount – start with setting aside at least 10% of your net income.
a set amount for everyone – they vary according to your income, lifestyle and necessary household and family expenses.
How much should you save?
Whether you’re earning a monthly income or retired, you should have enough money to cover at least six to eight months of living expenses as your safety net.
Where can you keep your emergency fund?
To ensure your savings are secure and will be readily available when you need it, seek facilities that are:
Safe from market risk. You’ll know your money is there when you need it most.
Easy to access. To ensure that you can withdraw the money easily and effortlessly.
Income-earning. Although the reason behind an emergency fund isn’t about making money, don’t deny yourself the opportunity to earn some profit on your savings.
There are two popular places to park your emergency fund:
An unfixed deposit account or a high-yield savings account
An account is an unfixed deposit account if it has the flexibility for you to make multiple withdrawals and has no maturity date. Look for unfixed deposit accounts that let your balance earn profit at high rates.
To find the right account for your emergency fund, look for options with a competitive earnings rate and no monthly fees or minimum balance requirements such as the CIMB UpSave account.
This account requires no initial deposit and no minimum balance. Additionally, your savings can earn up to 4% p.a. Make it easier by setting up a monthly automatic transfer to save you from sudden spending urges.
Fixed deposit accounts
Fixed deposit accounts or FDs earn higher profit rates than a typical savings account. However, should you withdraw before the FD matures. You will lose the profit but at least your initial investment remains.
If your emergency fund is already sorted, you’re well ahead of the pack. If not, it’s never too late to start. Just make sure to keep your savings in a place that’s safe, secure, and easily accessible in case you’ll need it. Equip yourself with the right tools so you can easily prepare for any rainy day.