After the COVID situation, should we relook at our emergency funds to see if 6 months of funds are really enough? Or should we extend our emergency funds to say, one year?

Just read this today.

2 in 3 working Singaporeans do not have savings to last them beyond 6 months: OCBC survey

https://www.straitstimes.com/business/banking/2...

Might not be reflective of the entire population as the response size is not large.

But it disturbs me quite a lot that a large percentage has no concept about savings in general.

This then also becomes a discussion of how much of emergency funds is required and to how to keep your emergency funds topped up. I think many of us will have our own idea of how much is enough.

But as how governments/companies have drawn down their reserves to deal with the current crisis, the next question that comes to mind is about sustainability.

Instead of seeing emergency funds as a pail now, I think we need to switch to thinking about it like a pond with automated incremental trickle of inflow. Maybe the Seedly team can do an article about how to build this out?

Hi Boon Peng,
A timely question. Frankly the answer varies from person to person, but some of the factors that affect how much one should hold, include things such as:

• Your current age. If you lose your job in your 20s, you can reasonably expect to find another job, although how long that will take is another matter. For someone in their 50s, they may have to enter involuntary forced retirement for good and thus it would be prudent for them to hold more emergency funds to tide them over the period before their retirement income portfolio starts to pay them. I suggest at least 12 months of expenses in your 20s, increasing by 6 months every 10 years or so as you approach retirement.

• Your lifestyle. Some people have been very used to a cup of starbucks a day and will find it hard to cope without it. Others may just drink it once a week or lesser, and are totally fine with cutting it out of their lives if push comes to shove. I haven't drank bubble tea since the stores were closed in late April, so I'm fairly confident that it's really a want and not a need, and that I can cut it out if I have to. Thus you should look at what I term as core expenses, which is the expenses that will be there no matter what, such as bills, and basic food. Not every meal needs to be in a food court. Hawker food is still affordable and delicious. Segregate your expenses into the real expenses and the wants. You'll know what you really need to spend in a month should things turn bad. Have at least 12 x of that amount.

• Your employment. As a self employed, I personal keep more in my reserves, as operating on a 6 months expense reserve is too little for my liking. Even if you are regularly employed, ask yourself: How long would you need to find a new job, and how would you cope if you reach 5 months of joblessness and your emergency fund is down to a month? You would probably feel even more stressed, which might negatively impact your performance at a crucial interview. I'd rather not go down that route.

• Your non-cash obligations. These might become cash obligations, e.g: If your CPF OA doesn't have sufficient funds as a buffer when paying a mortgage, it will run dry rapidly should you experience unemployment and you will have an additional cash expense which you can't escape from. Your expenses will go up in this case.

• Inflation. If you have put aside enough for 12 months of expenses some time ago (based on past year's expenses), you might want to review again. Inflation creeps into the picture easily and over time, what was once enough for 12 months may only be enough for 11 or even 10, even if you didn't change your spending habits. I personally continue to add on to my emegency fund every month, but only with something like $100-$200/mth just to hedge inflation. Review again every few years to ensure the amount stays meaningful and relevant to your situation.

There are probably some other minor factors as well, but all these added together should give you an idea of how much to have in your emergency funds. In the end, it's all about having enough such that you feel safe in riding out any loss of income from your day job, while you build up your other income streams to eventually be free.

6-12 would be nice.

You could do a pilot phase to reduce spending as much as You can for 1-2 months, then You can a bit weigh in what is enough for You individual situation. Yes, 12 months worth seem better than 6. But takes some time to have this sum available.

Everyone circumstances is different, everyone ability/willingness to cut non-essential/ discretionary spending varies too. Do it at your own pace