Wait Mush, why do I even need an emergency fund? I can always use whatever money I have in my bank. Well… that’s where you’re wrong!
Why do I need an Emergency Fund?
The name is quite self-explanatory! You would need it when you are facing an emergency, accident or loss of allowance/income. This is quite especially needed when most of your income is already depleted for the month. Having this would prevent you from having to borrow from bank or others, which can be financially bad for you! Think of it as a back up for “rainy days”.
How much should I have in my Emergency Fund?
It should be able to cover about 3 to 6 months’ worth of expenses for you. This means that you can go on living for 3 to 6 months. If you do not get a stable income or allowance, it is better to cover for more months. Basically, the bigger your emergency fund is, the longer you can sustain yourself. Of course, if you’re just starting out, save up bit by bit! The following was my emergency fund when I was in Poly:
Setting rules for an Emergency Fund
Having rules on when you should use is important as you would not want to spend it unnecessarily! Here are my own personal rules as a Full-Time National Service:
Only if it is urgent and unplanned As I have a budget to adhere too, some times things can get tight when I have to spend on something necessary but it is not in my budget. Fortunately, I have only faced this once as an NSF when I had to go to a private clinic as the polyclinic was closed. Other situations could include spoiling your phone or going to the hospital. This of course does not include buying a cool sneaker when it is on sale!!
Only if it might affect my life One possibility is that I could have borrowed some money and not paying it back could destroy my friendship or put me in a vulnerable position. Fortunately, I have not been in this position! For those older in your working life, this could be if you would need to take up a loan if you do not use this fund, or that you got fired or retrench. Of course, prevention is better than cure so try not to get into this position yourselves!
Possible situations that would make you feel relieved on having an Emergency Fund
Medical Emergency You never know when you might get into a position where your health is at risk! Touch wood, this could be a traffic accident, breaking your arm or even getting hospitalised for a flu (like COVID-19 ahhhh!!). This emergency fund would ensure you do not have to get into debt just to seek medical help.
Spoiling Something Ever had your vacuum spoiled suddenly out of nowhere?? My family has and having to spend $300 was quite a hit on our family budget. This could also include having your taps in your house leaking to the point of needing plumbing services, or having someone trying to break into your house and destroying your lock at the same time.
Losing Your Job For those working, you never know when the economy might take a hit (it might soon this year!!) and losing your job would be the worst case scenario. So having a few months worth of expenses would mean you have that amount of time to start finding a job or cut your expenses.
So do you have an Emergency Fund?
If the answer is no, it is time to start building it! Start slow, putting aside maybe $50 a month. In no time, you would have this safety net that would save you many headaches and a lot of money! As the saying goes, “The best time to start was yesterday. The next best time is NOW!”.