How much should I have in my Piggy Bank?
Human life is full of unexpected events. You never know when your car can just break down, water heater replacement, roof repair or an injury come on your way. In those occasions you are in look out of ready cash to cover you up. That’s why we all want to save for that rainy day and recently it has been seen that many Singaporeans have developed this practice of saving.
With more options and individual commitments there is a lot to explore the concept of emergency fund. It is usually defined as three to six months of income which is left untouched and should be kept at easy reach to access in emergencies.
Most of the time emergency fund is kept in simple savings account, as a fixed deposit will not let you liquidate the cash before a certain time line. Though its always best to consult your financial advisor.
How do I get started ?
Planning your emergency fund requires lot of attention, discipline and analysis. Set goals or targets that are achievable and be genuine as there isn’t going to be any reward unlike other financial goals like making a down payment for your car.
But the best part about the emergency fund is – once you reach the goal, you don’t have to invest or set aside more money into it unless there are life changing events which account for additional members to be accounted such as new born.
Savings for beginners can be done with following guidelines:
1. Priority to savings just after monthly expenses and debt payments
If you are already loaded with debt that’s your priority and your day to day expenses like food, transport, loan payments, education fees are all to be paid before you take the chunk out for savings. You can either set aside all the money left after covering all your expenses or set a percentage every month. There isn’t an exact answer or figure to quote for savings. Bottom line your emergency fund should be an amount that makes you feel secured.
2. Automate the Saving Process
Setting up an automated process such as GIRO or ACH (automatic withdrawal) will help fund x% to your savings account regularly. This covers you for any lack of discipline. If you are one of those who is unlikely to save regularly then setting up the automated deposit feature should help.
3. Direct bonuses towards Emergency fund
If saving is difficult from your monthly income, then set aside all your bonuses into the emergency fund instead spending it. Its difficult but remember once you have achieved the target, you can blow your future bonuses towards luxury expenditures.
4. Use Blitz Approach
If you can really handle a year living without partying, you can build your emergency fund in no time. Opting a blitz life style – which means living on just lesser (approx. 50%) of your income can actually get you to the target and then you are relaxed with your saving goals.
5. Limit unnecessary expenses – Less you spend, you save more. Some of your expenses could be unavoidable such as uber taxi rides, too many party or get together, unnecessary shopping. Go for smaller getaways, as moment you reach your goal you can spend as you like.
6. Consider using Singapore Saving Bonds
You can consider Singaporean saving bonds which can help you save and also earn interest of 2.6 per annum. Although this is not a very lucrative rate but at least your money will not stagnate and can grow over a period. SSB is comparably better than fixed interest deposit as you can redeem your bonds anytime without any penalty for exiting before maturity. This bond works with a flexibility of easy cash at disposal should there be any emergency.
7. Save in Dollars
Open a multi currency account which enables you to save different denominations ( RM 5000, USD$700 etc. ) and Citibank International Personal bank has one of those options. With money being in different currency, you cannot just walk up to an ATM and splurge on new pair of jeans. You can also be benefited occasonallly from exchange rates when Singaporean dollar value reduces compared to US dollar.
Start saving , its never too late. Initial days could be daunting but its financially wise to plan for the worst. You may not know what emergency situation could crop up but building emergency fund will make those circumstances less stressful. However, should such scenerio arise, speak with us at Credithub and see how we can help you.