Do we keep 6 months of emergency funds based on income or expensed? - Seedly
Seedly logo
Seedly logo
 

SG Budget Babe

Lifestyle

Savings

jiajing wang

Asked on 09 Dec 2019

Do we keep 6 months of emergency funds based on income or expensed?

I always see people Commenting to the community here that they need to ensure they have 6 months of savings for emergency funds. But some say is 6 months of your expenses while some say should be 6 months of the the salary.. Which is correct or let's say, better?

0 comments

25 answers

Answer Now

Answers (25)

Sort By

Expenses.

6 months from the age of 20 to about 40. Bump it up to 1 year from 40-55. 2 years from 55 to 65. And finally 3 years of expenses after retirement till the day you die.

Only use this money for emergencies only.

2 comments

👍
6
Danial Roslan

10 Dec 2019

Would it be better to stay at 6months e.fund and invest the rest at any age?
Hariz Arthur Maloy
Hariz Arthur Maloy

10 Dec 2019

You increase your emergency cash holdings due to the fact that retrenchment is a higher risk, re employment is also not a guarantee, and you may have many liabilities. So as we de risk our portfolios when we grow older, we increase our emergency cash holdings as well.
Thank You!
Can you clarify
I wonder if
This is so helpful 👍
What about
Post
Wallace Chai
Wallace Chai
Level 9. God of Wisdom
Answered on 09 Dec 2019

6 to 8 months on salary is a good guide.

0 comments

👍
6
Thank You!
Can you clarify
I wonder if
This is so helpful 👍
What about
Post

Hi Jia Jing!

6 months of emergency fund is a good guide as you cannot predict when bad things happen. For example, Retrenchment, medical bills etc. You will need this cushion for these events and at the same time quickly source for alternative income to help support!

0 comments

👍
5
Thank You!
Can you clarify
I wonder if
This is so helpful 👍
What about
Post
Ashri Mustaffa
Ashri Mustaffa, Financial Consultant at Prudential
Level 4. Prodigy
Answered on 09 Dec 2019

Hi Jiajing!!

Definitely, 6 months of emergency funds based on expenses would be the immediate priority.

Adding an additional buffer would be better.

You may gauge this by total 6 months income, 12 months expense, 12 months income, or lump sum additional buffer of eg. $5,000 - $10,000.

Meaning that should anything happen, this buffer allows your 6 months emergency fund expenses to remain untouched.

Hope this helps!!

0 comments

👍
3
Thank You!
Can you clarify
I wonder if
This is so helpful 👍
What about
Post

Hi Jiajing,

It should be expenses. Imagine if your income was rather high, that would be a problem.

This figure also needs to be adjusted according to your age (as you near retirement, it should be higher)

Although most people recommend 6 months for young graduates, I prefer to 12. In the event that you lose your job, it may be quite hard to find a new job within 6 months in the current economic climate. With the stress of watching your bank account deplete, you will find it hard to focus on finding a job.

3 comments

👍
3

1 more comments

IC

10 Dec 2019

Why "income rather high" is problem?
Ninja

29 Dec 2019

Because it would require “help” from fa if income is high? Get it?
Thank You!
Can you clarify
I wonder if
This is so helpful 👍
What about
Post
Junus Eu
Junus Eu
Level 9. God of Wisdom
Answered on 09 Dec 2019

It depends if:

Salary Expenses (ideal)

OR

Expenses Salary (not ideal)

And take the higher tier. It's always good to keep more.

0 comments

👍
3
Thank You!
Can you clarify
I wonder if
This is so helpful 👍
What about
Post
Wilson Nid A Break
Wilson Nid A Break
Level 9. God of Wisdom
Answered on 09 Dec 2019

6 months of expenses at the least. If you want to be more conservative, cant go wrong with 6 months of income

0 comments

👍
2
Thank You!
Can you clarify
I wonder if
This is so helpful 👍
What about
Post
Kelvin Chin
Kelvin Chin
Level 5. Genius
Answered on 09 Dec 2019

Funds to cover 6 months of expenses would be great!

0 comments

👍
2
Thank You!
Can you clarify
I wonder if
This is so helpful 👍
What about
Post
JO
Joanne Ong
Level 4. Prodigy
Answered on 10 Dec 2019

I would say probably 9 months of living expenses or 6 months of salary.

Due to the tough job market now. It will always be better to have more than less.

0 comments

👍
1
Thank You!
Can you clarify
I wonder if
This is so helpful 👍
What about
Post

Firstly, we need to have a complete understanding on our cashflow. Through this process, we will understand our earning ability and spending habit. Here is a guide to help you: https://www.blog.pzl.sg/understanding-your-personal-cash-flow/

Under the section on on Basic Financial Ratio, you will have the formula for

Rainy Day Funds = 3 to 6 months of total monthly expenditure.

Here is an explanation why:

Definition of Emergency Fund: The amount of money required in the event of a crisis, e.g. retrenchment, family needs, illness. Consequently, this money is used to ensure that we have sufficient financial liquidity and is able to live our basic lifestyle.

On 6 months of Savings: Since emergency funds is meant to be exhausted, there is no need to have savings. Hence, we shouldn't consider the amount that we need based on savings.

On 6 months of salary: During an emergency, we do not need our full salary. Instead, what we are most concerned with is the expenses that we need to take care of. Therefore, calculating our emergency fund based on salary will result in an over-estimation.

6 months of total expenses:

Total Expenditure = Fixed Expenses + Variable Expenses

As a general rule, we will want to have 3 to 6 months our total monthly expenditure. During this period of time, we are supposed to tide over any crisis that we have and to resume our normal role and get back to work before we hit the half-year mark. Otherwise, we risk being in an undesirable scenario where we are exhausting our money faster than it needs to be.

Here is everything about me and what I do best.

0 comments

👍
1
Thank You!
Can you clarify
I wonder if
This is so helpful 👍
What about
Post
Eveline Lau
Eveline Lau
Level 6. Master
Answered on 09 Dec 2019

It should be based on your expenses but personally I went for "6 months salary" because I'm more conservative and kiasu. Minimally have a 6 months expense as emergency fund. If you don't spend much or you've just started to work or have a low salary, you may want to increase the number of months of salary.

0 comments

👍
1
Thank You!
Can you clarify
I wonder if
This is so helpful 👍
What about
Post
Soh Yew Wei
Soh Yew Wei
Level 4. Prodigy
Answered on 22 Dec 2019

The rule from finances book is 6 months of EXPENSES

however it is purely up to u if u want to use income instead.

i feel expenses is more than enough for most pple

0 comments

👍
0
Thank You!
Can you clarify
I wonder if
This is so helpful 👍
What about
Post
Bjorn Ng
Bjorn Ng
Level 9. God of Wisdom
Answered on 22 Dec 2019

Hi there,

6 months of expenses would be the base/minimum way to go, but for me, since I manage and feel that expenses < salary, I go for 6 months of salary just for that additional buffer/margin of safety.

0 comments

👍
0
Thank You!
Can you clarify
I wonder if
This is so helpful 👍
What about
Post
A
Angie
Level 3. Wonderkid
Answered on 10 Dec 2019

Hi JiaJang,

Actually 6 months is just a guide. You can choose to save more as well. Its all on your comfort. If you want to save 6 months of expenses is also good enough!

0 comments

👍
0
Thank You!
Can you clarify
I wonder if
This is so helpful 👍
What about
Post
Kang Hai Wee Daniel
Kang Hai Wee Daniel
Level 3. Wonderkid
Answered on 10 Dec 2019

Objectively, 6 months salary is the bigger pie so to speak and hence is the “better” one.

That said, different people will be at different stages. If you have difficulty saving 6 monthly salary before moving on to say the investment piece and you want to hit the metal while it’s hot, it’s not wrong to proceed on with just 6 months expenses.

Either way is ok I think.

0 comments

👍
0
Thank You!
Can you clarify
I wonder if
This is so helpful 👍
What about
Post
Cedric Jamie Soh
Cedric Jamie Soh, Director at Seniorcare.com.sg
Level 9. God of Wisdom
Answered on 10 Dec 2019

Both are right. 6 Months of expenses is a more accurate way, since it is like saying you have 6 months to live without needing a salary, so you can give up the saving or investing part of your salary and only count the expenses. (serious in an emergency, forget about saving or investing).

And obviously in an emergency, your expense is probably lower than usual. (skip the weekend buffet, skip the weekend drinks)

Having said that, 6 months of salary is not wrong too, it allows you more buffer in case the emergency situation drags longer and longer.....

I will say aim for 6 months of expense ASAP first, mark a milestone, then carry on to 6 months of salary later. ^.^

0 comments

👍
0
Thank You!
Can you clarify
I wonder if
This is so helpful 👍
What about
Post
S
Sheena
Level 4. Prodigy
Answered on 10 Dec 2019

6 - 12 months of expenses would be what I follow! :)

0 comments

👍
0
Thank You!
Can you clarify
I wonder if
This is so helpful 👍
What about
Post

Hello Jiajing!

In my opinion, it's better for 6 months of expenses because if anything were to happen, the following 6 months you do not have to worry about your fixed spendings. However if you can build it 6 months of your income, why not! Better to have some spare cash as backup in case of any emergency

0 comments

👍
0
Thank You!
Can you clarify
I wonder if
This is so helpful 👍
What about
Post
Alfred Chan
Alfred Chan
Level 4. Prodigy
Answered on 09 Dec 2019

I would say go with 6 month of essential expenses and place them in high interest bank account for liquidity (eg: StandChart Jumpstart, CIMB FastSaver etc)

Have another 3 - 6 months of non-essential expenses and keep those in high yield, less risk investments (eg: SSB, bonds etc)

In the event where you need more than 6 months of essential expenses (touchwood) at least you will be able to moderate your expenditure based on the additional 3 - 6 months and will not be forced to a loan or liquidate your investements.

0 comments

👍
0
Thank You!
Can you clarify
I wonder if
This is so helpful 👍
What about
Post
Isabel Wong
Isabel Wong
Level 6. Master
Answered on 09 Dec 2019

Expense is sufficient! (as many others have said). I would include a bit of buffer though.

0 comments

👍
0
Thank You!
Can you clarify
I wonder if
This is so helpful 👍
What about
Post
Load more answers