How long can you go on without a job?
Singapore's unemployment rate has taken a dip.
People have lost chunks of their income, or their entire jobs, due to the COVID-19 pandemic.
And many have found it difficult to cope with all these new changes. Work-from-home (WFH) doesn't suit everyone. And a lot of non-essential companies have had to cut costs.
If you're someone who has always relied on a stable income for your day-to-day expenses and living, not having a job is tough.
And not having a job means you need to dip into your savings to survive.
If you've been retrenched or if you have quit your job to start a new endeavour, you also need to have some sort of savings to keep you afloat while you find or stabilise your income.
But how do you do this? How do you survive this instability and lack of income?
You rely on your emergency fund.
In Singapore, surprisingly, reports keep showing that working citizens don't have sufficient savings to last them a good stretch of time.
If you feel like you're part of this statistic, then it's time to level up and prepare yourself for any rainy days ahead.
Keep reading to find out how you can protect yourself from the potential loss of income and how an emergency fund plays a vital part in this.
What is an emergency fund?
If you’re thinking of the funds in your bank, then yes, that's what we refer to as your emergency fund. This safety net is meant to cushion your quality of life in the event of temporary disruptions to your income.
Say if I were to lose my job today. My emergency fund can keep me afloat for up to 6 months, allowing me to continue my lifestyle (and more importantly the financial obligations I have) while I look for another job.
An emergency fund can also rescue you from a toxic boss or negative work culture. It gives you the security to leave an unfavourable environment and survive while you work for a preferable job.
It can also fuel your expenses as you stabilise a new business establishment or a change in career, location or increased responsibilities.
Why do you need an emergency fund?
Let's take the COVID-19 pandemic situation.
Since the pandemic hit in early 2020, many companies have had to cut salaries or undergo retrenchment exercises - especially those that were deemed non-essential.
A lot of business owners have also had to close their doors.
Say these individuals who were let go don't have emergency funds. How will they manage to survive and live their lives?
Having an emergency fund can help ease off burdens in situations like these.
Some other situations where emergency funds come in handy include health issues for a loved one who is not covered by insurance, a career change, a transitionary period to move to another location or country, or even a rainy day situation like damage in your home or a non-functioning car that you have to fix.
Ideally, you should have sinking funds for repairs, but in the case that all your savings are in one account, they will all fall under your emergency savings stash.
How much should you set aside for your emergency fund?
But how much is enough?
It depends on how soon you expect to find work again.
➡️ A young graduate in the 20s may take 3 months to find a job
➡️ A professional in the 30s may take up to 6 months
➡️ Someone in their 40s may take up to a year
Is your emergency fund a good safety net? Find out by booking a call with me.
Ways to build your emergency fund
One of the biggest obstacles to building your emergency fund is cashflow. How fast you build it depends on your income, liabilities and debt obligations.
While building an emergency fund may not be the easiest feat to accomplish, don’t put it off as it is the foundational step to financial freedom.
Here are some suggestions on how you can build yourself a comfortable cushion in case of unforeseen circumstances:
Pay Yourself First
The first thing many people do when they receive their income is to pay all their bills.
But we should change the equation and pay ourselves first.
If not, why work in the first place?
And the key is to add to the fund at regular intervals. So each time, when you receive your income, dedicate the appropriate amount and set it aside.
If you find yourself unable to put aside a regular amount each month due to income and expense restrictions, consider broader lifestyle changes such as downgrading your mobile phone plan.
Skipping that two-week vacation (since we can't travel right now anyway), cutting down on the amount you spend ordering food, and saving your next raise or bonus are also achievable methods of adding to your emergency fund.
There's only so much we can save. Drawing a higher income also allows you to have more cashflow.
Some simple, low capital ways you can do this include:
Take up a professional course that can push you closer to getting that pay raise or promotion at work.
Consider building a side income, provided your job allows it, that doesn't take too much time or resource (e.g. writing an ebook on a topic that is your expertise).
Talking to a financial consultant (like me, HI!) who can guide you on small steps on how you can start investing within your means and in safe and stable options.
These are just some suggestions you have to start and grow an emergency fund.
Now that you understand what an emergency fund is and how you can achieve it, I hope that you get more confidence in your personal and professional life to soar much higher.
ℹ️ If you need any help or advice on your finances, let's chat.