Emergency fund is one of the monthly budget items that you need to pay attention to. What exactly is an emergency fund? An emergency fund refers to a sum of money saved for unexpected events, such as job loss, home repair costs, the risk of natural disasters and vehicle breakdowns.
These high-cost emergencies are easily met without interfering with other financial items, such as savings for children’s education or retirement savings. In addition, the emergency fund can reduce the risk of debt.
How much do you need for an emergency fund? People have different amounts of savings for their emergency fund. This is because the expenses and income of each individual or family also vary. However, an emergency fund should be at least 3 times the monthly expenses for individuals who are not married.
If you are married, the ideal amount of emergency fund is 6 to 12 times your monthly expenses. This is where the emergency fund comes in, helping you fulfil your primary needs until you can recover your income.
How to Build an Emergency Fund
Then, how do I build an emergency fund? Here are the steps to consider to build your emergency fund.
1. Start Small
You can save at least 10-20% of your total income every month to build your emergency fund. For example, the emergency fund you need to set aside every month from a Rp5 million salary for an unmarried individual is around Rp500,000/month. If you are married and have children, set aside at least 20% of your total income every month. If the combined income of you and your spouse reaches Rp30 million a month, your monthly emergency fund should be around Rp6 million.
2. Start Now
The earlier you start, the faster the emergency fund will accumulate. By setting a target emergency fund amount to collect, you can make it a practice to be disciplined in setting aside your income. Amid the uncertain economic situation and conditions, none can predict the future exactly. Having an emergency fund can ease anxiety about uncertain situations.
3. Create a Separate Account
Ideally, emergency funds are kept separately from other needs. That way, it won’t get mixed up with other needs. It should be noted that a special account for emergency funds requires quick access. So, should there be an urgent need, you won’t have any trouble withdrawing the funds.
4. Adding from Bonuses or Additional Income
Another way to collect an emergency fund is by getting additional income. If you don’t know when you’ll get your bonus, looking for additional income can be a way out. Try to find a side job with flexible hours so you can still have time for yourself or your family.
5. Store in Liquid Assets
Not only can emergency funds be stored in a savings account, but they can also be stored in mutual funds or gold. However, if you want to store your emergency funds in mutual funds or gold, you must be aware that the value of these two assets fluctuate following market movements.
6. Do It Consistently
Consistency is key in building an emergency fund. You have to be disciplined in setting aside your income for emergency fund and not using it other than for emergencies. Being consistent in collecting emergency funds can help you reach your target faster.
7. Discipline in Using It
As already mentioned, the use of emergency funds is only for emergencies. How to separate between needs and wants? Check out some of the points below to help evaluate the urgency of a need or want.
- Is this an emergency, urgent, and unforeseen?
- Is it a necessity?
- Does this have to be paid immediately?
- What is the impact if it is not met right now?
- Is it so important that if it is not met, it could potentially disrupt life?
If all the answers are “Yes”, you can use the emergency fund.
A portion of your monthly income can be set aside and allocated to any asset. BCA’s Individual Savings products cater to every financial need, from Tahapan Savings to time deposits. Enjoy ease of transactions and maximum security for your assets with BCA products.