facebookHow long do we realistically need to build up emergency funds? Is just simply saving the best way to build it? Is it counter-productive to invest to build up our emergency funds? 🤯? - Seedly

Anonymous

04 Jun 2021

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How long do we realistically need to build up emergency funds? Is just simply saving the best way to build it? Is it counter-productive to invest to build up our emergency funds? 🤯?

Assuming saving 20% of monthly income, one would need 30 months = 2.5 years to build up emergency funds. That sounds like a very long time 😬 Is there any way to quicken this process?

Discussion (9)

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Think of it this way. Emergency funds are for....well... emergencies.

For those with no safety net (let's say parents who can house you or you can hit them up for a loan), it's the difference between being out on the street and having a roof over their head.

But ok, let's do the Singaapore context.

Supposing you were out and about when a reckless e-scooter rider zooms past you. You are startled and fall, and fall hitting the wrong side of your head. You have suffered brain damage and need about 6 - 9 months to recover thru rehab and therapy. You only have about 1-2k in your bank account. So who is going to pay for your rehab and therapy and your hospital stay?

Your emergency fund is possibly a mental exercise where IF you are unable to work due to sickness or accident all of a sudden, how many months could you last?

But beyond your emergency fund (which some may define to be about 6-12 months of expenses), some have no idea how to invest, so they tend to hoard it. Having 100s of Ks in one's saving bank account, that's quite a nice problem to have. But that's another story, putting your dollars to work.

Anyway, for a young person, getting a Medishield Plan with a rider, an personal accident plan and a critical illness plan (all term) should cover one for most emergencies.

That way, your only big emergency is unemployment....or a family emergency.

That would be a close kin, e.g. your parent getting injured instead, and you'll have to take time off work to be the caregiver. But I digress. As in most aircraft safety guides, attend to yourself first, then assist others.

TL:DR, get yourself covered with the right term insurance plans and Medishield, then you can focus on saving as much funds as possible to get to your 6 months of expenses, then you can start to invest in a regular savings plan or DCA a regular investment. ​​​

Elijah Lee

25 Aug 2020

Senior Financial Services Manager at Phillip Securities (Jurong East)

Hi anon,

The best way is to cut down expenses drastically (there is only so much that you can cut down, though), so that you can save 50% or more of your take home salary at the start of your working career. If you spend half and save half, you just need 6 months to save 6 months of your expenses. If you spend a third and save two thirds, you just need 3 months. Once you've reached 6 months, you have attained the minimum you need and can then slow down the pace at which you save up your emergency fund, and start to look at investing, etc.

Also, you may wish to explore side income such as tuition. You can also save your entire bonus or AWS which does go a long way to helping you build up your reserve.

You'll get there. I used to think 12 months was going to take forever too.

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Yes, just saving, arduous but meant exactly so....

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