One of the biggest reasons most people save money is to buy or invest in something highly valuable in the future. It can be their college fund or a new car or home. However, emergencies never give you the opportunity to save within a set amount of time. For this reason, having an emergency fund is imperative for Singaporean and anyone in the world.
Because there’s no way to learn the actual amount of funds you need for emergency incidents, you’ll need to make your savings progressive and just as undefined. Of course, emergency fund contributions should not take away spending for your daily needs or even wants. However, it’s important to always leave enough for it.
What is an Emergency Fund?
An exemplary budget accounts for all kinds of expenses. These include your daily utilities and food spending, rent, work expenses, and other factors that consistently take a substantial bite from your budget. Most are unprepared for emergencies because of the following reasons:
- They find their environment safe
- Believe they have a good, accident or sickness-free environment
- Stable employment with consistent and unchanging pay
- Have a laid-out budget that has been tried and proven through the decades
Because these events aren’t consistent and doesn’t take out much regularly from their budget, emergency funds are ignored. However, the likelihood of sicknesses, accidents, property wear and tear, vehicular wear and tear, and sudden unemployment are still present. While they’re not frequently, just one event can throw off an entire budget into shambles. An emergency fund acts as a buffer to protect your finances, which helps reduce one of your biggest problems should any of these happen to you.
Reason 1: Sudden Accidents or Sicknesses
At any time, a vehicular or personal accident can happen. Even if your workplace guarantees the least possible risks of physical injuries, it can still happen. With so many variables and objects moving at the same time, vehicular accidents can always happen. The wide range of infectious diseases occurring in the world today are staggering, which does not reduce the risk of contracting a very fatal disease.
True enough, Singapore is one of the best places for medical services. While you have the best chances of surviving any accidents or diseases, your budget has no guarantee of survival. With an emergency fund, you can circumvent the entire event quickly and easily and even spend just a little bit of your savings for any amount going over your emergency medical bills.
Reason 2: Repairing Detrimental Appliances and Having Property Maintenance
Properties are quite expensive to invest in. Therefore, even if they’re just small percentages of the total cost, repairs and maintenance services will never be affordable at all. In this light, emergency funds can help when it comes to having your broken appliance repaired and restored. True enough, property maintenance should be part of your utility budget, but in case you failed to account for it, then you can use your emergency fund to shoulder the expenses until you can integrate it into your budget effectively.
The best way to prevent denting your emergency fund with appliance issues is to invest in high-quality products from renowned manufacturers. Being discerning when it comes to purchasing appliances and even materials for property repairs and improvements helps you prevent big bills in the future too.
Reason 3: Unexpected Unemployment
True enough, Singapore is one of the best places to find work. With an unemployment percentage of 3.77 in 2018, its open economy ensures everyone has a stable job and income. In addition, the number of companies and businesses are way larger than the employable population it has, which makes it easy to find a job with a low number of competitors vying for the same position.
However, it doesn’t mean that all Singaporeans with jobs have job security for the rest of their lives. A sudden workplace accident, sickness, or error can turn an entire budget over itself not only because of the huge medical bills (for the former) but also the ensuing lack of income.
Reason 4: Uncharted Payments (Due to Accounting Flaws)
Budgeting requires accounting as a foundation. Without accurate accounting, it’s easy to lose track of payments and other financial activities. When this happens, it can cause havoc especially when you’re faced with emergency situations.
Lacking a goal is one of the most common ways Singaporeans lose track of their expenses. Without clear goals, it’s easy to spend money too freely especially on things that you shouldn’t prioritise at the moment.
In addition, underestimating costs of replacement appliances can cause a huge dent on your budget. With an emergency fund, you can pay off these accounting flaws and errors easily without taking a huge chunk off the fiscal allocation you’ve had for that year.
The Difference Between Savings and Emergency Funds
Both emergency and savings funds have similarities but they differ greatly in purpose. Savings are easier because you have a fixed amount to target and save up for. On the other hand, emergency funds need to be incremental and within the average cost of all possible medical treatments for accidents and sicknesses, personal injury, and unemployment.
Additionally, savings will never ever cause any dent to your budget. Emergency funds act as a buffer against any form of emergency spending, which can go overboard and eat through your additional savings. However, it’s better to have emergency funds to make sure you always meet your regular financial goals and objectives.
Only Used During Emergencies
Emergency funds work only for the purpose you intend them for: act as a good buffer to avoid breaking your budget. It’s never wise to transfer your emergency funds to your savings fund just because you feel there’s no emergency that can happen at any time. Most Singaporeans and money-savers regret this decision especially when undesirable financial surprises come out of the blue.
It’s also worth noting that emergency funds do not guarantee a zero-spending from your savings and utilities fund. Depending on your emergency’s nature, you might need to take a bit more from your other savings envelopes. Now, imagine if you didn’t have an emergency fund to act as buffer. The situation can definitely become more dire than it initially was.
Prevent Huge Budgeting Dent For Cash-Strapped Individuals
Singapore’s healthcare system is one of the best in the world. The government and private healthcare systems make it easy to receive emergency services for your accidents and sicknesses. However, if you’re strapped for cash, medical accidents and sickness funding might make you feel more displeasured after you see the final medical bill you’ll receive before getting cleared from the hospital.
With an emergency fund combined with the Singaporean government’s subsidised healthcare services (which you pay for by compulsory national savings schemes), you will prevent huge budgeting dent allowing you to focus on your financial goals despite any possible obstacles that can derail your finances.
Gives You Peace of Mind
You can’t buy peace of mind. But, if you have an emergency fund, you know you’re ready for anything. Knowing is always half the battle, and having your own emergency fund gives you alternative and varying plans when any situation pops up. With a plan, you’re always ready. You can tell yourself you’ve already planned for this instance, and your situation feels easier to manage than ever before.
True enough, insurers adopt the same concept: give you peace of mind through pre-guaranteed monetary and itemised benefits if your situation fulfills certain conditions. However, emergency funds allows you instant access to your money once the situation already unfolds right before your eyes, which makes it easier to manage.
Saving money for emergencies isn’t rocket science. All you need to do is understand how much money you’re making. Then, list down every liability you think is holding you back from maximising your budget. Once you’ve had this list of assets and liabilities, you can quickly get started on having an emergency fund by doing the following.
Step 1 : Set a Regular Emergency Fund Savings Goal
Your emergency fund shouldn’t take much from your utilities and savings. However, it’s important that you have enough left to allocate for emergency fund growth. To provide you with motivation aside from alerting you to the health, accident, and unemployment risks in Singapore, it’s important to set an emergency fund savings goal you can realistically achieve.
The goal is simple: determine an amount you need to save straight into your emergency fund. Don’t cut more than 10% of your funding for utilities. However, be generous in the amount you’ll decrease from your miscellaneous or spending budget envelopes. Cutting down on wants is more important than your needs when it comes to clearing a path for your emergency fund
Step 2 : Never Touch Your Emergency fund AT ALL COSTS
You should only use emergency funds for emergencies. To do this effectively, it’s important to define what qualifies as an emergency — and we’ve listed these above for your reference. In turn, we’ll list events that most people might think to be emergencies but really do not qualify.
- Lacking Utility Budget: You won’t need to take out money from your emergency fund just to address your in-the-red utility budget for the month. If you have spare cash from your spending envelope, you can use it to pay for this. Your savings envelope can also pay for your lacking utilities in the meantime because you can always reset your savings goal timeline (and it’s a great practice in patience.
- Commute Budget in the Red: Similar to your utilities, you can spend money from your spending and savings envelopes. Emergency funds won’t be needed to resolve these issues.
- Accelerating Your Savings Account: You’re just a month away from reaching your goal savings amount to buy an item or service you want. Unless you’re saving for a time-based need (such as college and university fees with deadlines), never use your emergency fund to accelerate your savings goal and logistics. All your wants can wait for a while because your needs come first.
Step 3 : Every Small Amount Counts
Whether it’s just S$1 or even smaller amounts that you can save from every transaction, deposit them in coin boxes or piggybanks. You might ignore these coins in the future (and it’s greatly possible you will), but putting them in one place allows you to account for the entirety of your emergency fund. In doing so, you’ll know where to get some spare change to buffer against the increasing expenses you’re dealing with when emergencies arrive.
Step 4 : Invest Some Time in Profitable Side Projects
If you have time to spare after your daily work, you can always invest it in honing your skills or working on your hobbies. In fact, you can document it and gain followers across different mediums including YouTube and Facebook. Additionally, working part-time online makes it possible to earn side income that will help bolster your emergency fund quickly too.
Step 5 : Discipline is Everything
Emergency funds are only efficient if they’re regularly funded. They need not be a priority, but they should always be within your list of responsibilities. In doing so, it can function promptly when the time comes that you need a financial buffer when a sickness, accident, or unemployment expense takes a lot more out of your budget.
Step 6: Allocate budget for Income Replacement Insurance
Most people think that they don’t need emergency funds because they’re already paying for insurance policies. While it works greatly during emergencies, insurance policies work only if your situation qualifies for its benefits. You’re definitely going to pay/save higher for a comprehensive (but expensive) insurance policy that covers virtually every type of situation, which is considerably impractical especially if you’re living a healthy lifestyle or in an acceptable-risk living and working space.
Step 7: Planning to have a Medical Health Card
Health cards guarantee you will have a room and attending doctor when you have a sickness or accident. This is convenient because most health cards pay for 70-100% of your total medical billings as long as you pay your regular billing statements. While they’re useful during emergencies, medical health cards are limited only to protecting your health until you stop paying for its regular membership fee. However, this still works as an effective buffer because your emergency fund can now work as an unemployment emergency fund.
Emergency funds are similar to savings funds in a nutshell. However, you can only use the fund in case of any event that qualifies as an emergency. While it functions similarly as an insurance policy, emergency funds are more accessible and flexible. Start yours today!