Financial emergencies are some of the biggest nightmares anyone can experience and they are inevitable. Medical expenses, servicing costs, unemployment, dependants’ educational expenses, etc. can knock at your door any time and lack of money to bear such uncertain expenses can make you put you in such a difficult situation.
So, it is always wise to set aside money for emergencies, which we refer to as an emergency fund. The bigger the emergency fund, the more secure you will feel. But as a rule of thumb, an emergency fund should be equivalent to your six months’ worth of living.
We listed below the ways how to build your emergency fund effectively, follow these tips and you’ll never worry about financial uncertainties.
1. Calculate the Total That You Needed to Save
A loan or your credit cards can support you during a financial crisis, but that also brings the repayment burden. So, to avoid unwanted debt, you should always have a backup plan. An emergency fund is a backup that you can create by being more calculative. But before starting the calculation and savings, you must know what you need to calculate. You need to determine how much money you should save for an emergency fund for it to be effective.
Everyone leads a different lifestyle from each other. But as a rule of thumb, it is ideal to save money that can suffice the 6 months of your total living cost and expenses.So, one must calculate the income, constant and the variable expenditure every month, for a total of 6 months. This calculation will provide you a clear perspective about how much you would like to save.
For example, if you are earning SGD 5,000 each month, your estimated emergency fund amount should be around SGD 30,000. And if you resolve to save that within a year, then you need to set aside around S$ 1,250 monthly to fund an emergency saving, which is equivalent to 25% of your monthly income.
As an emergency can happen sooner or later, it also means that the cost of living can increase or decrease anytime. It is also safe to save some extra than the calculated number, as this will ensure your financial security. And by adding up some extra, you’ll gain a sense of security and let you be prepared for the things to come.
2. Set a Monthly Savings Goal
Now that you know how much emergency fund Singapore you need to save, you need to determine your monthly savings goal. It is quite clear that you cannot raise a fund in six months equal to the six months’ worth of living. It will take time and compromises in your monthly budget that will determine your monthly saving goals.
Set a goal that is realistic and reasonable to you. As per the previous example, if you resolve to save SGD 30,000 in one year instead of two years, you have to save around 50% of your monthly salary. It can cause you a drastic change in your lifestyle that may not be practical to everyone. So you should always consider some reasonable goal that you can save by reducing some of your not so essential expenses in your monthly budgets like random outings and parties, eating out frequently, availing costly conveyance, etc.
At this stage, you might wonder about the reason to build an emergency fund while living in a city like Singapore, where you can get a loan for your financial emergencies. Yes, you can take any long term or short term loan such as a daily loan, weekly loan, monthly loan, etc. or use a credit card to tackle any financial issues.
But a short term or long term loan also brings a sudden load of repayment inclusive of fixed interest rates. That eventually starts affecting your monthly cost of living suddenly. So, it is quite understandable that planned changes are far better than the sudden ones. So you can feel financially secure if you have emergency funds Singapore to tackle your uncertain financial needs.
3. Have a Coin Bank
The first and foremost rule of saving money is to be very mindful of your transactions, such as your earnings and expenses. We often tell some service providers like the taxi drivers or the restaurant crews to keep the change as a tip. Well, to raise an emergency fund, you should learn when to give a tip and how much to give.
Having a coin bank can be very convenient to save those changes that you end up spending here and there mindlessly. So, the next time you receive a change, drop it to your coin bank for your emergency funds. In this case, cashless payment options are quite convenient. One will barely pay extra than the bill if he pays it using cashless options.
4. Automatically Transfer Funds
You should take the emergency fund very seriously as it can you greatly during unforeseen circumstances. And to do so, automated savings funds are very convenient. The money you save for emergencies in the savings accounts should be easily accessible as the crisis can show up. Besides that, the advantage of building emergency funds through a savings account is that you will earn interest on the saved emergency funds.
People who get their salary directly deposited to the bank account can take advantage of this system. As your employer transfers your salary to the bank account, they can easily divide the salary amount into the necessary parts and send that to the separate accounts. That means you can achieve your saving goals quite easily. And besides all of these, your expenses will be limited because you will get the salary after saving some money.
Apart from the salary, you can also direct your investment returns or the maturity amount of insurance policy to that fund. In this way, all the benefits of those maturity amounts will be secured.
5. Save Your Tax Refund
When you are in the process of saving money and building an emergency fund for your survival, every single penny is vital. Any certain income should be deposited as the emergency savings fund. And your tax refund is such amounts that you can get and save in case you have filed any.
If you file your taxes all by yourself, you should direct any such refunds to your savings account. And if any service provider manages your portfolio, ask them to do so on behalf of you. In this way, you do not tend to spend that money unnecessarily, which will boost your emergency stash instead.
6. Adjust Savings When Necessary
Setting a monthly savings goal and trying every possible way to save the amount is not enough to take you to your destination. You need to monitor the whole process and check your emergency fund’s balance from time to time.
One thing you have to be very careful about is that you will not withdraw money from that account without any genuine cause to do so because it will hamper the entire process and time by reducing the saved amount.
Check your emergency fund balance frequently so that you have a clear perception of the required amount and time to build the entire fund. If you see the estimated growth in that fund, then you are going in the right direction. But if it is less than that, then you might need to reconsider your monthly expenses. Try to make some required alterations in the budget so that you can increase your monthly saving. Being a little more considerate about your living expenses ensures your financial stability. Apart from that, if you are earning a fixed income every month, you can opt for additional income sources.
As financial emergencies can show up at any time, your emergency fund should be readily available. Save this fund into such accounts from where you can easily withdraw any amount. On the contrary, your emergency fund is not like other regular savings and investments. It must be used up only during emergencies. Therefore, the emergency savings account must be easily accessible.
You should select a high-yielding savings account to build a fund for your emergencies. You should know the difference between emergencies and other things. This will stop you from reaching out to your emergency fund now and then. Looking to take a step further to save money? Check out things you need to do to save money in Singapore.
However, if you are experiencing financial difficulties without an emergency fund, it is ideal to compare loan options using a loan comparison website such as Instant Loan. Instant Loan can help you address urgent financial matters by finding the best loan package for your needs. Visit the Instant Loan website to shop for the best loan deals in the market.