Prepare Your Emergency Fund

Hi Moduers!

During social/ physical distancing, which team are you in? Team with less expenses or team with more expenses? In whichever team you are in, Moduit would like to again remind you of the importance to prepare for emergency fund if needed in times of emergency. Do you want to know more about emergency fund? Let’s discuss! 😊

 

Emergency Fund

Before discussing further, are you familiar with the meaning of emergency fund? What is emergency fund? In simple, emergency fund is the fund prepared to be used only in the unexpected case of emergency. Due to the unexpected nature, it is important for you to spare your monthly income regularly to be allocated for emergency fund. It is also important to note that emergency fund is different from fund used for daily expenses and hence could only be used in the case of emergency.

 

The examples of case of emergency are living expenses during times when income is lower due to cut in working hours as of now, cost to repair houses in the case of fire or flood, medical cost in the case of sudden illness or accident and other emergency cases.

 

Emergency Fund Amount

There is no certain amount to determine the emergency fund needed to be prepared per individual. The amount varies based on individual profiles, including the type of job, marital status and health condition. Some financial planner suggested emergency fund amount to be equivalent to 3-6 times monthly expenses or even 6-12 times monthly expenses. However, regardless the amount that has been prepared, it is important to ensure the fund is liquid, which means it is accessible anytime during emergency situation that is usually unpredictable. In percentage, it is advisable to spare 5%-10% of monthly income to be allocated as emergency fund.

 

As an illustration, if your monthly income is Rp 10 million and your monthly expenses is equivalent to Rp 8 million, it is advisable that you spare Rp 500 thousand – Rp 1 million (5%-10%) to be allocated for emergency fund. As per suggested by financial planner, the amount of emergency that needs to be prepared is approximately around Rp 24 million – Rp 48 million (3-6 times) or Rp 48 million – Rp 96 million (6-12 times) according to each individual risk profiles.

 

How to Start

Delay no more, Moduers! Let’s spare your monthly income to be allocated for emergency fund for a calmer heart. Are you confused on how to start? Follow below simple tips!

  1. Write down your monthly expenses. This is to help you identify which expenses could be reduced so the additional amount could be allocated for emergency fund instead.
  2. Separate emergency fund savings from your daily expenses fund, especially those that you normally placed in electronic wallet for daily expenses so it is easier for you to resist yourself from spending all of the funds.
  3. Start sparing the percentage of your monthly income slowly. Why having the fund set aside instead of saving the remaining by the end of the month? If you wait until you have remaining fund by the end of the month, there is higher chance that you could spend more and have nothing leftover to be allocated for emergency fund.

 

The most important aspect to succeed in preparing emergency fund is your will and discipline. If you have implemented the discipline to set aside your monthly income as emergency fund, this will become a habit and will not feel difficult anymore. The next question will be: where should the emergency be stored? Stay tuned on our next article, Moduers!

 

 

#SalamModuit

 

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