Building your Emergency Fund

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Budgeting

Building your Emergency Fund

What is it?

A bucket of cash to help meet expenses and loan repayments because of unexpected events

The Emergency Fund is 6-9 months of expenses

Why should we do this?

To have peace of mind to be able to still meet monthly expenses and loan repayments in case we suddenly lose your income and don’t find another job immediately, and for help with unexpected crises

We don’t have to sell off investments or other assets at a bad time to meet unexpected expenses

How do we do it?

Pay Myself First by automating transfers into a separate account every month, until the target amount is reached. If we draw on it, top it back up when we can

CPF Ordinary Account can be used as part of the Emergency Fund, e.g, keep x months of mortgage payments in CPF OA, and a smaller cash pool for other expenses

Freelancers and those who cannot easily find replacement jobs should upsize Emergency Fund to 12 months

Those who have high interest credit card debt to pay off can consider a lower emergency fund target, and focus on paying off credit card debt

Example

My gross monthly salary is $4,000. I spend $1,600 cash every month, including $200 cash for my HDB mortgage payments. I pay another $800 towards my mortgage using my CPF OA. I should accumulate an Emergency Fund of 6 x $1,600 = $9,600 in cash savings, and at least 6 x $800 = $4,800 in my CPF OA

Or, I can have a bigger in my CPF OA of 6 x ($200 + $800) = $6,000 in my CPF OA to have a cushion for my mortgage, and hold 6 x ($1600-$200) = $8,400 in cash savings