Introduction
With the ever-rising cost of living, we can no longer take for granted the necessity of building an emergency fund in Malaysia.
- Introduction
- Why an Emergency Fund Matters
- Common Emergencies Malaysians Face
- Benefits of Having an Emergency Fund
- How Much Should You Save?
- General Guideline — 3–6 Months of Expenses
- Factors That Influence Your Target
- How to Calculate Your Emergency Fund Goal
- Where to Keep Your Emergency Fund
- High-Interest Savings Accounts
- Fixed Deposits (FDs)
- Amanah Saham Bumiputera (ASB) and Unit Trusts
- E-Wallets and Digital Banks
- 4 Steps to Start Saving
- Start Small and Stay Consistent
- Automate Your Savings Process
- Reduce Unnecessary Expenses
- Use Windfalls or Bonuses to Boost Savings
- What NOT to Do with Your Emergency Fund
- Avoid High-Risk Investments
- Don’t Use It for Planned Expenses
- Keep It Separate from Daily Spending Accounts
- Maintaining and Growing Your Fund
- Review Your Fund Annually
- Adjust Savings as Lifestyle Changes
- Explore Higher-Yield Options Once the Fund Grows
- Conclusion
- FAQs
Anyone is exposed to risks, whether it’s a sudden loss of job, an unforeseen illness or even a hefty repair cost – any such expense can pop up without warning. So, having a dedicated emergency fund is both crucial and essential.
Whether you’re just starting to set up an emergency fund or you need one before the next mishap strikes, (it’s never too late!) this emergency fund guide is here to help you navigate your situation.
Why an Emergency Fund Matters
An emergency fund matters as it helps you create a financial buffer for unexpected events without relying on other tools like credit cards or personal loans.
Unexpected events like medical emergencies, job loss, or urgent repairs can derail your finances without savings to fall back on. Hence, having an emergency fund is necessary.
Common Emergencies Malaysians Face
Here are some common scenarios that Malaysians face when it comes to emergencies:
- Sudden retrenchment or pay cuts
- Unforeseen sickness, hospitalisation
- Major repair work with vehicles or at home
- Natural disasters
Having an emergency fund will definitely help you cushion the impact of these calamities!
Benefits of Having an Emergency Fund
The benefits of setting up your emergency funds are countless, but here are some worth mentioning :
- Reduce financial stress: You don’t have to seek outside help from people or even try to secure loans from bank
- Other uses if funds are not utilized: If you have not faced any emergencies, these funds are also usable for other long term goals like putting down a home deposit or for your retirement
- Avoids bad debt: Since you have your own funds for emergencies, there’s no need to take any additional loans which can come with very high interest rates
How Much Should You Save?
General Guideline — 3–6 Months of Expenses
A general rule of thumb is to save at least 3 to 6 months of your living expenses. This range is most practical for many as it will help most people cover their important expenses like food, housing and transport.
Meanwhile, having 6 months of funds built up just gives you even more breathing space in case your emergency does not resolve quickly.
Factors That Influence Your Target
Not everyone starts at the same level when they decide to create their emergency fund. Let’s look at some of the factors that affect their emergency funds’ target:
- Job Security and Income Stability
If you work a 9 to 5 job, chances are you are slightly more stable when compared to those who are business owners or freelancers. So aim higher if you are the latter.
- Family Size and Dependents
If you do have to manage a household with kids or elderly parents, aim for emergency funds which are well more than 3 months. Alternatively, if you only have to manage yourself, the standard 3-6 months is pretty decent to start with.
- Health or Medical Risks
If you are already aware of any medical risks that you or your family have, your emergency fund should take into account a much higher medical expense, just in case anything goes wrong.
How to Calculate Your Emergency Fund Goal
The first step in calculating your emergency fund is to start by listing all your expenses like rental, groceries, bills, transportation and so on.
Next, whatever figure you may have as an expense, multiply it by 3 to 6 month depending on your circumstances.
[su_box title=”For example:” box_color=”#77001d” title_color=”#ffffff” radius=”10″]If your monthly expense comes up to RM2500:
RM 2500 X 6 = RM 15,000
RM15,000 should be your emergency fund goal.[/su_box]
Where to Keep Your Emergency Fund
Storing your emergency fund is as important as creating it. Let’s look at some of the places you can keep your emergency fund in Malaysia.
High-Interest Savings Accounts
There are many high-interest savings accounts which are available in Malaysia which you can use to store your emergency funds. Some popular choices include CIMB FastSaver, OCBC Booster, or Maybank’s MAE account.
These accounts are not only a space to hold your money safely but it can be withdrawn anytime without penalties, making them ideal for emergencies.
Fixed Deposits (FDs)
Fixed deposits are another safe option to store your emergency funds. They help you grow your funds, thanks to the interest rates offered.
However, bear in mind that FD will lock in your emergency fund for a period. Therefore, make sure that you have other funds that you can reach into immediately before placing yours in FD.
Amanah Saham Bumiputera (ASB) and Unit Trusts
ASB and unit trusts also offer a return for your funds but beware of the risk that it involves, plus the withdrawal delays you might have to face.
Again, it is not ideal for all of your emergency funds due to the risk as well as withdrawal limitations, but can be considered for partial funds.
E-Wallets and Digital Banks
E-wallets and digital banks are becoming more and more popular as a tool to store your emergency funds.
They seem to offer pretty competitive rates, sometimes even better than the traditional FD. They are also easy to use as most are manageable via your phone.
However, pay attention to make sure that the platform is reputable to ensure that your money is indeed stored safely.
Reviews the growing popularity of e-wallets and digital banks for storing emergency funds, due to convenience and competitive rates.
4 Steps to Start Saving
Saving for your emergency fund doesn’t have to be complicated. Let’s look at some emergency saving tips that you can practice:
Start Small and Stay Consistent
Begin with manageable amounts like e.g. RM2, RM5 or RM10 a day. You don’t have to go big right away. What is more important is that you save consistently.
Automate Your Savings Process
Easily set up an auto transfer from your account to your emergency fund after every payday. That way you will not be tempted to spend it on anything unnecessary.
Reduce Unnecessary Expenses
List down all your expenses and look at where you can trim down your expenditure. For example, your subscriptions. Perhaps you no longer need your Spotify account?
Dining out may also be one of the biggest expenses for most of us. Perhaps cutting down how many times you eat out might help you save.
If you are big on shopping, you can try to delay your purchases for 24 hours to avoid unnecessary spending.
Use Windfalls or Bonuses to Boost Savings
Channel your unexpected income like bonuses, ang pow, tax refunds directly into your emergency fund to accelerate progress. These are the true ‘boosters’ for your emergency fund to grow exponentially.
What NOT to Do with Your Emergency Fund
Avoid High-Risk Investments
As tempting as it may be, do not put your emergency funds into volatile assets like stocks, crypto, or speculative products where value could drop drastically.
Don’t Use It for Planned Expenses
Emergency funds should not be used for vacations, gadgets, or planned large purchases. You should have a separate savings account for those items.
Keep It Separate from Daily Spending Accounts
Keep your emergency money in a dedicated account to avoid accidental spending and maintain mental discipline.
Maintaining and Growing Your Fund
Review Your Fund Annually
Your lifestyle might change every year. So review your expenses yearly and adjust your emergency funds accordingly.
Adjust Savings as Lifestyle Changes
If you take on new responsibilities, such as marriage, kids, or a home purchase, then increase your emergency funds accordingly.
Explore Higher-Yield Options Once the Fund Grows
When you reach your emergency fund target, you can place portions into slightly higher-yield instruments like FDs for better returns while keeping the bulk liquid.
Conclusion
Hopefully this emergency fund guide is helpful in helping you navigate creating your emergency fund. The most important aspect of needing an emergency fund is ensuring that you have enough financial security and peace of mind, should anything go wrong.
Nothing is ever too little to put away – start today, even if your amount is small. Eventually, it will snowball into a meaningful amount that will help you cushion any unwanted circumstances.
