Building an Emergency Fund

‘Save for a rainy day’ is a phrase that has been repeated countless times by my parents since I was young. As I come to understand their upbringing and background, I can see why they subscribe and believe that having an emergency fund is so important (I will delve deeper into this mindset in another post).

Having read Dave Ramsey’s ‘Total Money Makeover’, this call to action was reinforced and a wake up call to me. With a newborn child around the house now, it is more important than ever to have an emergency fund to provide buffer for life’s curve balls. I am sure we don’t want to be in a situation whereby unexpected bills like air-con breakdown or replacing of faulty car part cause us panic and stress over whether we are able to make ends meet for that month. This is why an emergency fund is important. It tides you over unexpected situations which may be trivial or even those that are life-changing such as temporary unemployment.

Start small. The first step towards an emergency fund is putting aside a sum of money whether it be big or small. Your initial emergency fund should be $1000. To some this might not be a big sum and can be accomplished right off the bat, while to others, it may take some time to complete stashing this emergency fund. IT DOESN’T MATTER. This is your journey and everyone progresses at their own pace. What is more important is to be disciplined in setting aside money to build up that initial $1000.

Keep pushing yourself. After putting aside that $1000, don’t stop there. Build on it. The suggested emergency fund size for individuals is anywhere from 4 – 6 months of expenses but for simplicity’s sake, I am aiming for $10000 of liquid cash for my emergency fund. You can adjust this sum based on your needs and expenses.

When should you use it? In an emergency situation, and I don’t mean when there’s a sale on some E-Commerce platform, and you need to pay the bills, you can reach into your emergency fund. Essential things at home can become faulty and breakdown, hospital bills (touch wood but this can be better handled with insurance coverage) or even getting laid off due to restructuring in your company. Getting hit with this without the necessary buffer can set one back on their personal finance journey so utilize your emergency fund wisely and prudently.

What’s next? After using a sum from your emergency fund, you should try to replenish it steadily until it is back to the amount you set out for yourself. This helps prepare for future emergencies so that you don’t put yourself in a precarious position having just surviving one.

Share with me your thoughts and comments!

SG FI Dad, out.