In our previous tips, we discussed on the importance of setting personal financial goals and for this week’s topic, we would like to discuss the most important financial goal – the emergency fund.
Everyone have dealt with set-backs in their life – could be sickness, household repairs or some unforeseen situations. When it happened, were you prepared to handle them financially? If your answer is no, then now it’s a good time to start an emergency fund for yourself.
An emergency fund is pretty much self-explanatory – is to set money aside in case of any emergencies. You never know when this can come handy and help solve when the situation arises. Avoid being in debt and always prepare yourself for the worst with an emergency fund.
Once again, let’s start off by thinking how much you would like to save and does your income allow you to? With this in mind, you should be able to track your expenses and set a budget for yourself as explained in our previous tips: #1 – See where your money goes, #2 – Who takes the biggest bite?, #3 – Mr. Income meets Ms. Spending, #4 – Do I really need this? and #5 – Your financial goal.
Determine how much you can afford each month, a realistic amount that you can save and put aside. It is not going to happen overnight and it will take time to build up your emergency fund. So even if you can only put aside RM10 or RM20, that is totally fine. The most important part is that you get started today and have a sense of security with your wallet at all times.
Having said that, it is time to set up a system or a plan to start putting money aside on a routine basis. A good way to start is to open up a bank account with automatic deposits (you can enjoy the benefits of interest rates banks are offering!). If you prefer to save in cash, make sure it’s in a safe place and self-discipline is important so you don’t spend the money for something else. We can always go back to the good old piggy bank method.
Regardless the method, it is crucial to have an emergency fund as we mentioned earlier, it is always handy to be able to solve your problems financially and stray away from debts to achieve your financial goals.
In our next Wisdom Tip #7, we will continue to help you to grow your wallet.