I recently read about a survey done by the Organization for Economic Co-operation and Development’ (OECD) in 2020, showing that Hong Kong was the only country, out of 26, where the majority of its population had a good percentage of money saved for a “rain day”. Citizens in the other countries surveyed, hardly had even one week of emergency funds (savings). This literally broke my heart.
For if there is anything, we have learned from the Covid-19 pandemic is the importance of being financially resilient. And it starts with our Emergency Funds!
So, what is an Emergency Fund? It is exactly what it states. It is money that is earmarked for emergencies & unexpected events. It is the parachute that will save us during financial difficulties!
Three main reasons we should we have an emergency fund?
1. Our JOB situations are in upheaval with globalization, technology, and now the pandemic.
2. Life is full of UNEXPECTED events – it could be a health situation, car breakdown, pet illness, home repair, or OTHER.
3. Tapping into an Emergency Fund makes more FINANCIAL SENSE that using our Long-Term Savings. And definitely better than using a Credit Card whose high-interest charges can be a dagger to our financial health.
MOST importantly…unexpected events are STRESSFUL…we should not burden our mental, physical, and financial health by not being prepared!
How much do we need?
The general rule of thumb is that an emergency fund should cover our living expenses for 3 to 6 months. Personally, I think it depends on your situation (example, the length of time it may take you to replace your current income if you lost your job). In today’s environment that could take anywhere between 6 months to a year (or more). That’s why I recommend saving 9 to 12 months in your emergency fund.
I know this sounds overwhelming, so my recommendation is JUST START saving any amount you can and be consistent. Also remember, you are AIMING to save for the “bare bones” of your usual living expenses. If you lose your job for instance, you won’t be splurging on certain elements that you might otherwise spend on if you were still employed.
Where do we keep our Emergency Funds?
An Emergency fund is meant to be LIQUID, meaning that the money should be easily ACCESSIBLE. Therefore, consider putting this money into a high-interest savings account (the highest you can find), money market account, short-dated CD’s, or other account where you can access it without penalties.
🌟 My TOP TIP 🌟
Keep your Emergency Fund SEPARATE to where you have your “normal” bank accounts. And by that, I mean, a whole different Bank. This will help you avoid dipping into it for non-emergencies!
Friends let’s work on our emergency funds, which are our financial parachutes, starting today. Let’s commit to protecting ourselves & our loved ones in the face of the unknown!
And always remember to Wear Your Money Crown & Rule Your Finances!
Warm wishes,
Anna Orenstein-Cardona
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