How to create Emergency Savings

A survey done by RinggitPlus Malaysian Financial Literacy Survey (RMFLS 2020), 53% revealed that they would not able to survive more than 3 months if they lose their jobs. What’s more alarming is that 60% of respondents age 35 and below said they would not be able to survive longer than 3 months if they lose their jobs.

Saving may be a challenging task during this pandemic but without saving, there’s where life goes tough when the unexpected hits. Building a nest for emergency fund helps to ensure you have sufficient income to weather financial adversity.

Ideally, we need to stash up at least three months of saving for essential living expenses. First we need to identify what are our essential expenses. Identify the essential expenses : It should be expenses you not able to life without it. Example, mortgage or rental payments, basic utilities, groceries, basic transportation costs, child education fees, necessary healthcare cost which includes health insurance, regular medical visits and regular medicine. Things like extra streaming services, dining out, buying new clothes, entertainment shouldn’t be included in.

Switch to use cash or debit card. When we used cash or debit card, we tend to be more cautious in our spending and spend wisely. Do not spend beyond your means using credit. Avoid impulse buy, buy only items that is essential to you.

Save 1st, spend later : When we get our monthly paycheck, 1st thing we need to do is to set aside 20% of our monthly income for emergency funds or retirement purpose. Subtract the amount of bills we need to pay every month and the amount of money for investment. Emergency funds are the money we need to use in the event of unexpected events, so it needs to place in somewhere with high liquidity (eg : saving or fixed deposits). Whereas investment is the money who can help us generate income for us even during retirement or maintain our current lifestyle in the future. Can you imagine how bad is the feelings to life with our basket of wealth in a depleting manner without recurring income ? Isn’t it great during retirement our money can continue to generate consistent passive income ?

Stash the windfalls : Make a practice to save the mini-windfalls you will get occasionally. For example on Hari Raya Aidilfitri, Chinese New Year and birthday celebrations where we get angpau from the elders. Or money we get from old items we sold off.

Let the saving do their part : Try to place your money in a more liquid platform while able to help you generate some return. Don’t let inflation overtake wealth. Make sure the money invested is capital protected too.

For more in depth discussion, contact me now.

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