3 Eye-Opening Facts About Emergency Funds

It’s the end of the month and Vanessa is excited to see the digits on her payroll account. Yes, it’s payday and she can’t wait to buy those Louboutin killer heels with the spare cash from her hard-earned salary. Unfortunately, Vanessa’s savings can’t cover her necessities for the next 3 months, so if anything bad happens — God forbid —  she might have to get into debt to pay for the unexpected expenses.

What is Considered an Emergency?

The latest Louboutin on sale, not an emergency.

However, unfortunate events like  losing your job, illness or death of a loved one, and accidents are considered emergencies that will require you to spend beyond your regular expenses. So a trip to Bali isn’t an emergency, unless the trip involves a family member who is ill or who passed away. This is why budgeting becomes an important part in building your Emergency Fund.

An ideal Emergency Fund for an employee is at least 6 months of your living expenses stored in a savings account. If you run a business or work as a freelancer and have an irregular income, it’s better to have a savings that covers 8 months of your expenditure. For example, if you earn Rp 10 million per month and spend Rp 5 million for your essentials, you have to keep Rp 30 million as an Emergency Fund. There are different schools of thought on this, but LiveOlive believes that those amounts would be enough to get you back on track.

Here are few tips to manage your Emergency Fund:
1. Put your Emergency Fund in a savings account, not a time-deposit. Remember, the fund has to be liquid but not accessible enough for you tempted to use, hence, it’s best to separate it from your payroll account and eliminate the option to have an ATM card.
2. Your Emergency Fund has to be free from risks so it shouldn’t be saved in mutual funds, foreign exchanges or other types of investments.
3. If you still have credit card debts, try to pay it down more quickly by cutting down your shopping budget or
 negotiating a more lenient payment with your bank.

It’s not easy to keep yourself from spending your spare cash, but saving it would protect you in a monetary crisis. When you already have 6 months saved in your Emergency Fund, no debts, stable work and a regular income, you can concentrate on achieving other goals and have a peace of mind while doing it. Good luck!

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