If there is one takeaway from this whole COVID-19 pandemic, it is probably the importance of having an emergency fund and to be prepared during this life-changing times.
Let’s take an in-depth look into the emergency fund. Particularly on the what, the how, the where and my favourite, how to save money for an emergency?
What is Emergency Funds?
As the name implies, they are your backup money in case you ran into unexpected events. This can be a sudden loss of jobs, unforeseen medical expenses or unexpected home or car repair.
You need to have a clear objective for emergency funds. They are strictly for emergency only. Upgrading your smartphone, buying a last-minute ticket for vacation and buying the latest sneakers is NOT an emergency.
They are necessary so that you are not forced to use the savings that you have saved up for big purchases i.e house or wedding. Having an emergency fund also meaning you don’t have to take unnecessary loans in case of unexpected events.
How Much Do I Need for My Emergency Funds?
The answer to this is never straight forward because it depends on your circumstances. For example, an unmarried civil servant does not require as much emergency funds as a private-sector worker with a family.
In short, it depends on a few variables such as your job security, commitment and habits. But all is not lost because there are a few guidelines around this which can give you a pretty good idea on how much to save.
First, start to track your spending, now! I know that it is daunting to track every single Ringgit that you spent but in a month you will have a clear picture of your expenses. Let say your monthly expenses is RM 2,000 which includes rent, utilities, food and transportation. Use this RM 2,000 as the basis for your emergency fund.
Your first target should be to save about RM 2,000 which also means you can sustain your current lifestyle for one month, even if you are out of a job. Once you have saved RM 2,000, the next target would be 3 month worth of expenses and then, 6-month (RM 6,000 and RM 12,000).
If you are super hardcore, save up 12-month worth of your monthly expenses (RM 24,000) and you can live free without having to worry about an emergency.
Where to Put My Emergency Funds?
An emergency is sudden and often unexpected. So, you want your emergency fund to be somewhere that is accessible and easy to withdraw.
That means, your emergency funds should not be tied to an investment such as properties, unit trusts, cryptocurrency wallets and Robo-advisors. You cannot quickly withdraw your money on these platforms and withdrawing your money will only hurt your investments in the long term.
So, where should you keep this money then? Just keep them in your savings account is fine as they are the most accessible to you. The downside is if you are not disciplined enough, you will “accidentally” dip into the fund if you are not careful.
The next best place will be in a separate bank account than your main ones. If your main bank account is Maybank, use CIMB bank account as your emergency fund.
After you have achieved a comfortable amount of emergency fund, you may want to start making the money work for you. You can start to look into Tabung Haji or fixed deposit (FD) account as they can be linked to your bank accounts and still offer quick access.
Prioritise convenience, but don’t keep them under your mattress.
Just How To Save Money For Emergency Funds?
You must be wondering, with all of your monthly commitments and spending, where can you squeeze the money for emergency funds? Below are my 6 suggestions:
1. Cut subscriptions Spotify, Netflix, Audible.
Go through all of your existing subscriptions and cut the ones that you used the least. Better yet, cancel all of them. Your priority is to set up an emergency fund as soon as possible so, sacrificing a few months of that Netflix subscription should be no problem.
Besides, there are free alternatives to these services on the internet or you can use YouTube.
Potential Savings: RM 20+/month
2. Tax Refund
If you have been tactical in your spending last year, you might just maximise your tax refund for this year. Usually, the Inland Revenue Board (LHDN) will deposit your tax refund within two weeks after your filing. Use this extra money to boost your emergency fund.
If you still haven’t yet filed for your taxes, you have until the end of this June to do so.
Potential Savings: RM 100+ depending on your tax calculation
3. BSH/PRIHATIN fund
If you still have your job and without any salary cut during this pandemic, consider yourself fortunate. And if you are also eligible for the PRIHATIN stimulus, then things are going great for you. Use this money to boost your emergency reserves.
Potential Savings: RM 500+
4. Bonus, Allowances, Salary Increment
Every time you receive your 13th-month bonus, performance bonus, allowances or salary increment, put the extra money into your emergency fund until you reach your target.
You can choose to be aggressive and put all of the money aside or more conservative by putting only half of them. It’s your choice, really.
Potential Savings: RM 100 – 1000+ depending on your job and salary
5. Selling Stuff on Carousell, Mudah & eBay
If you have already done all of the above, the next best thing would be to increase your income by selling the stuff that you no longer need. You will be surprised to know that you can sell your sneakers, unused gadgets and board games through Carousell, Mudah.my or eBay.
I use these platforms all the time to sell my shoes, video games and gadgets. Yep, they work.
Pro Tips: Be as detailed as possible in your ads and put ONLY the best photo of your item.
Potential Savings: RM 10 – 100+ depending on the items and quantity
6. Ride for Grab/Foodpanda/Bungkusit
Alternatively, you can take up some on-demand job such as driving/riding for Grab, Foodpanda and Bungkusit in your spare time for additional income. I’m not quite sure how these companies structure their payments so I cannot comment on the possible income.
If any of you guys are currently doing these jobs, do comment below to share your insight.
Potential Savings: TBC
If you are still doubting the importance of emergency funds, then this COVID-19 pandemic should change your mind. Be disciplined, use your emergency fund only for emergency and put them somewhere that is convenient and accessible to you.
ACTIONABLE TIPS: Still unsure where to start? Then, start tracking your expenses today and by the end of the month, you should have your first target amount. Start today!
How do you structure your emergency funds? Tell me about them in the comment section below. Also, do share this post within your Twitter and Facebook circle so they can start to save for their emergency funds too!