Since a reader asked about emergency fund, I thought to talk a bit about it again.
https://earlyretirementsg.weebly.com/blog/emergency-fund-do-you-need-it-or-not-and-why
Long long time ago, in 2013, I discussed about it. 2013. It's been 7 years. I was still working then.
So many things have changed.
For us, I don't really keep an emergency fund. We keep around S$5,000 in cash for living expenses. Any additional cash due to dividends, incomes, etc. Is all available to go into investments.
The thing is, for emergency funds, we need to understand ourselves and our situation.
I feel that emergency funds are useful in certain situations. Some people need it more than others due to different family situations and circumstances.
Example, someone who is a Grab driver might need a larger emergency fund. Someone who has unstable pay or working part time would likely need an emergency fund.
Someone with elderly parents who aren't self sufficient may need an emergency fund.
Most of the time, many people blindly keep an emergency fund.
For me, I don't agree with this.
First, I assess my current situation whether I am considered a high risk person/family which needs an emergency fund. I assess the probable situations which might occur. Medical bills? Family problems? Car repairs? Retrenchment?
I've covered most of these in my past post.
IF I have all my funds in investments, and keep only S$5000 in liquid cash, every month, my wife would still have additional income coming in, or every few months, dividends will come in, we will continuously have additional liquidity flowing. Even IF there are really critical issues which come about, I can always liquidate my investments. If it is really an emergency, taking a loss isn't much of an issue.
So for us, I don't see the need for a large emergency fund. If really needed, I do have some cashlines, credit cards for short term financing. Remember, this is EMERGENCY fund. If I really need cash, then I will pull whatever tricks I have available. Even if I have to take a short term loan.
The thing is, I always try to keep my investments liquid. I try not to keep them in insurance related policies where I can't access the cash when I need it. So stocks and listed products are my typical choice.
Now, I'm not saying emergency funds are a bad idea. They are useful in many situations. People who are freelancers, property agents, sales people who work based on commission, jobs which are easy to get fired, retrenched, example, the folks who were put on unpaid leave due to the coronavirus issue.
So it really depends on each individual circumstance, working environment, company, dependents, other family members, other commitments, etc.
It is part of true overall financial planning.
I call it true overall financial planning cos what most financial planners do, a needs based selling, is not considered true financial planning. Typically, most people don't do true financial planning, where they really list down everything available to them, and plan around all their individual unique circumstances.
Also, it's important to understand your partner and their living habits and their family circumstances as well, cos that may also impact the overall financial plan.
The thing is, cos we have low monthly spending, a $5k "emergency fund", in my opinion, is sufficient for us. $5k can last us more than 2 months, if we were still in SG. If we add my wife's income and any dividends, every month, we will have a new $5k flowing in, which basically keeps 4 months worth of expenses ready at any point in time.
But well... different people different lifestyle, difference circumstances, different risks.
So I would say, each person needs to assess their own requirements and determine what makes sense for themselves, and also what makes them feel secure, even if they don't really need an emergency fund, maybe for their own peace of mind, they may want to keep an emergency fund anyway.
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