An Emergency Fund is a bucket of cash to help meet expenses and loan repayments because of unexpected events.
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 our 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 first.
Example
My gross monthly salary is $4,000 and take home $3,200 each month after CPF contributions.
My cash expenses come up to $2,600 every month and I pay $800 towards my HDB mortgage using my CPF OA.
For my emergency fund, I aim to accumulate:
$15,600 (6 x $2,600) in cash savings
$4,800 (6 x $800) in my CPF OA (which I will keep in OA and not invest)
Attention
Emergency Fund should be kept in very safe and liquid instruments, like cash deposits
Singapore Savings Bonds are suitable but have up to one month "notice period" for selling. Hence, at least one month of Emergency Fund should always be in a liquid bank account.
Additional Resources
Creating a Robust Emergency Fund: Financial Resilience Amid Rising Living Expenses
