Lately I’ve been thinking about my emergency fund.
To most people, emergency fund means having a pool of cash to fall back on in case anything bad happens, such as to tide over a job loss, or to pay for unexpected medical bills. Besides saving for “bad” emergencies of cos, an emergency fund is useful even when our life is a bed of roses. (I don’t like to just focus on negative things).
– you decided that you have enough of your boss and fire him/her. You can use your emergency fund to travel for awhile before looking for a new job.
– you decided to have a career switch. For people around me, most are already holding senior executive or mid management positions. We used 6 – 8 years of our lives to build up our existing careers, but we may realised it’s not what we actually wanted and decide to make a complete career switch, where we may have to start from the bottom all over again. We may then need to use our emergency fund for the short fall in salary.
– being a woman, it’s common to leave our jobs to care for our kids especially when they are still young, or at least for the first few years. Imagine you and your husband do not have an emergency fund and both your salaries are needed to fund your family expenses. You’ll be caught in a situation whereby you want to take full time off to take care of your kid but can’t.
– having an emergency fund also means that you can grab hold of any opportunity that comes along, like setting up your own business, or buying more equities during crisis time (50% sale!). While some may argue that we have our opportunity fund for that, sometimes, such funds are already being fully utilized and an emergency funds serve to step up on our exposure to such opportunities.
Now, where do you save your emergency funds? For me, majority of my funds are in a UOB Fixed Deposit account, and the rest in a UOB saving account. It is advisable to keep your emergency fund liquid so it’s best to save it in a Fixed Deposit account, or a saving/current account where you can have easy access to.
So how does one determine how much emergency fund to have? One friend suggested 6 months’ worth of salary, and another recommended 12 month of living expenses. After giving this piece of information some thoughts, I’ve decided to use the higher of 6 months salary, or 12 months living expenses, just to be on the safe side.
Unknowingly, I’ve been saving aggressively (I saved about 45% of my salary last year), and now have up to more than 12 months of living expenses up my sleeve. It’s time to step up on investing and I’ll move the excess funds into my opportunity funds for investments whenever the opportunity arises. I’ll also stop contributing my monthly savings into this account and to channel it to my upcoming Europe trip in Sep. Yay honeymoon!