The turmoil of the job market is starting to feel more real. Many layoffs are happening more often and this creates a sense of insecurity among workers: “will I be next?”, they wonder. If you are also aware that your career is not foolproof, you need to have an emergency fund ready in case something bad happens. Having this ready will also keep you away from being indebted or having to apply for a loan for urgent needs. Here is what you need to know about emergency funds and simple saving tips to prepare for it.

What is an Emergency Fund?

An emergency fund is essentially money saved aside to cover life’s sudden and unexpected circumstances. The money will help you to live for a few months if you lose your work or need to pay for an unforeseen expense. An emergency fund is not meant for unnecessary spending. You would not spend this money on a vacation or new outfits. Instead, you would hold this money in reserve for when you really need it. Consider it to be similar to an insurance policy; instead of paying a company, you are paying yourself money that you may spend later. If anything bad happens, the cash can be obtained immediately and easily. 

Emergency Fund = Savings?

While the concept of an emergency fund is a lot like savings, it is different from your regular savings. With savings, you can take some from it if you want to buy something you want, such as paying for a vacation, upgrading your gadget, or buying new clothes. After all, savings is the extra money you can manage to save once your basic necessities are fulfilled. 

Emergency fund, on the other hand, is one you cannot simply use if it is not very urgent, hence the name. Consider it as a safe haven that you should not touch unless you suddenly get laid off, a family member needs money for medical treatments, or if you break your phone or laptop that it cannot be used anymore. If you have already had savings by now, but have no emergency fund yet, you can consider moving your savings into an emergency fund budget. Although this will feel tough, since it may take up a huge portion of your regular savings, you will thank yourself later.

Paying Debts vs Saving Up

When it comes to talking about basic necessities, debt repayment should be taken into account. It is common for people to still pay monthly installment for something. While it is wise to prepare for an emergency fund, debt repayment should be prioritized. However, this is not a sole excuse to not try saving up at all. Strike a balance between paying debts and saving up: This helps you develop healthy money habits and keeps you from needing to borrow money in an emergency. Consider how much you can fairly afford to allocate to your emergency fund while paying off debt. Even if the amount is not as big as you target it, this is the start of a positive financial habit. As your debt load decreases, your fund will continue to grow, albeit slowly.

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How Much Should You Prepare?

As a starter, Investopedia suggested us to prepare a three-months worth of living cost. This is applicable if you are living on your own or are not in charge of anyone else’s financial expenses, such as a sibling or parents. For example, if your monthly living cost is S$3500, you need to have at least $10500 in your emergency fund. However, this may not be viable if you are married, have kids, or are responsible for a family member’s financial expenses. In this case, you sum up your monthly living cost with them and multiply it by three to six. This is to make sure that your family can get by for three to six months if you get laid off and will still need to find a new job in the meantime.

How to Save Up

The amount of an ‘ideal’ emergency fund can indeed look worrisome, while you also know that you should not use that much amount of money you will be saving up for. Fortunately, your journey to save up for an emergency fund may look less heavy if you do it the right way. 

The first thing to do is to review your spending. Divide your costs into necessary and non-essential categories as you go over your budget. Rent or mortgage payments, utilities, and food are examples of necessities. Clothing, entertainment, and dining out are examples of non-essential items. Consider what you can minimize or eliminate from your list of items you regularly spend money on and try your best to hold the urge to shop for trivial things.

Review your employment; how many months do you have until your contract is finished or needs to be renewed? For example, if you have 11 months left of contract by the time you are preparing an emergency fund, perceive that your ‘deadline’ to save up is in 11 months. If your three-months worth of living cost is at S$10500, then divide it into 11 and try to allocate that amount of money every month to put into your emergency fund. 

If you still think that you cannot save up only from your main job, you can try doing freelance gigs. For example, if you are working as an HR or recruiter, you can offer people a job-seeking private consultation. Many people are interested to have a second opinion on their job-seeking process and having a professional HR to consult is in demand for these people. If you have other skills, such as graphic design, UI/UX writing, and programming, you can start collecting extra money from freelance platforms like Upwork or Fiverr.

Where to Keep It

An emergency fund should be kept in a financial instrument that is stable, liquid and easily accessible. It can be too risky to put your fund on a crypto market that makes room for high return, butis very volatile. After all, The amount of return you may make is less crucial than having it available and safe. If you want something very traditional, you can store it in a safe deposit box. You can also put it on a bank account that has a low to zero monthly fee and store the ATM inside your safe deposit box to make sure that you are not tempted to withdraw it recklessly.

It is indeed difficult to save up, but when the going gets tough, you will be proud of yourself for having an emergency fund ready. You are the one person you can truly rely on to help you out of difficulty; don’t rely solely on family, friends, government safety nets, insurance plans, or mere luck. Bad things can happen without a prior warning. The best you can do is to prepare for the worst.

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