Life has a knack for throwing surprises our way, and emergencies are almost always unexpected and sudden. While we can’t foresee when these situations will arise, we certainly have the power to prepare for them by establishing an emergency fund.
Picture this: you crack a tooth while savouring a lollipop, injure yourself during sports activity, experience a vehicle breakdown, or face a sudden job loss – but with an emergency fund readily available, you won’t have to stress about how to cover the unexpected bills. You can rest easy at night, knowing you’ll be okay in those challenging moments.
Looking back three years ago, the mark left by the COVID-19 pandemic on our lives remains vivid as ever, making it clear that having savings is not just a financial luxury but a fundamental necessity. This unprecedented global crisis has opened our eyes to the stark reality that savings serve as a vital lifeline during times of unexpected challenges.
Whether you’re facing sudden job losses, unexpected medical bills, or unforeseen emergencies, having a well-established emergency fund provides financial stability to weather the storm.
What is an emergency fund?
An emergency fund, often called 'rainy day savings', is a dedicated pool of money you set aside specifically to navigate life's unforeseen financial challenges. These savings are meant for real, urgent needs, like covering rent during times of low income or handling unexpected medical bills.
It’s not a personal slush fund for your spontaneous getaways or fashion emergencies, no matter how tempting it may be to dip into those extra savings. Understanding when to use your emergency fund is just as important as knowing why you need one in the first place.
Why is it important to have an emergency fund?
Emergencies can take a toll on our physical, mental, and emotional health, so it's important to have a financial safety net in place. There are numerous reasons why you need an emergency fund:
1. You’ll be prepared
An emergency fund complements your budget by providing a financial cushion for unexpected expenses, helping you maintain your long-term financial goals.
2. You’ll save money
An emergency fund ensures that you can address unexpected expenses without derailing your financial progress. It allows you to protect your long-term financial goals by avoiding the need to rely on credit cards or loans, ultimately saving you money and helping you maintain a solid financial foundation without accumulating debt.
3. You’ll be at ease
Knowing you have a financial cushion can provide a profound sense of ease. It grants you the confidence to navigate unforeseen challenges without the added burden of worrying about how to fund them.
While we can’t predict the next emergency, we can prepare for it. Building an emergency fund is the ideal way to deal with the potential financial consequences of emergencies.
How to build your emergency fund?
Ready to build your emergency savings (or realising you need to save more)? If you’re eager to begin but unsure where to start – here are five suggestions that might make it easier:
1. Set a specific goal
You can begin by defining a clear target for your emergency fund. Determine the amount you want to save, which often aligns with at least three to six months’ worth of living expenses, but the ideal amount can vary depending on your individual circumstances and comfort level.
2. Create a budget
The next crucial step is to record and track your monthly income and expenses. This process will not only provide a comprehensive view of your financial situation but also help you pinpoint areas where you can reduce spending on non-essential items. By doing so, you can free up additional funds to bolster your emergency fund.
If you're looking for a digital tool to manage your expenses and build your emergency fund, the Belanjawanku app by EPF stands out as a valuable tool. This app simplifies the process of categorising and tracking your monthly and annual expenses, laying a solid foundation for effective budgeting, including creating and growing your emergency fund.
With the Belanjawanku app, you have the flexibility to choose your preferred tracking method, whether it’s using the estimates from the Belanjawanku guide or the Rule of Thumb method (45/35/20 Rule). This helps you compare your spendings to the recommended budget, gaining a clearer understanding of your financial situation.
Through the Belanjawanku app, you can make informed decisions about how much to set aside for your emergency fund.
Consider opening a dedicated savings account solely for your emergency fund. This separation makes it easier to identify which funds are reserved for emergencies and avoid unintentional spending on non-emergency items.
4. Set up automatic transfers
Simplify your savings by setting up automatic transfers from your primary account to your dedicated emergency fund savings account. This will help you build your fund consistently and effortlessly.
5. Start small, increase gradually
If saving a significant amount seems challenging at first, begin with a more manageable goal and progressively raise your contributions as your financial situation improves. You can achieve this by cutting expenses, regularly reviewing and adjusting your budget, and promptly replenishing the fund after utilising it for emergencies.
Start small and set aside a regular amount of money each month. Over time, your savings will grow, and you'll have a financial cushion to fall back on if something unexpected happens.
What if I need a backup?
While you diligently build your emergency fund, there may be instances when it falls short of covering unforeseen expenses. But don’t worry! You have other options to protect yourself.
You can tap into your Akaun Sejahtera savings for Health Withdrawal, which covers a wide range of critical illness treatments or essential healthcare equipment. It’s there to extend a helping hand to you, your spouse, your parents and your children during challenging medical situations – providing much-needed financial support.
EPF also offers the Member Protection Plan through the i-Lindung platform, designed to provide financial security and peace of mind for your medical needs. You can choose affordable life and/ or critical illness insurance coverage, with payments drawn yearly from your Akaun Sejahtera. Besides, you can choose from various insurance providers to suit your specific medical needs
So, even if your emergency fund falls short, you have these options ready to stand by your side in times of financial uncertainty.
