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How to Build a Robust Emergency Fund in Singapore

Ryan Ong

Ryan Ong

Last updated 14 March, 2016
<span id="hs_cos_wrapper_name" class="hs_cos_wrapper hs_cos_wrapper_meta_field hs_cos_wrapper_type_text" style="" data-hs-cos-general-type="meta_field" data-hs-cos-type="text" >How to Build a Robust Emergency Fund in Singapore</span>

A healthy emergency fund in Singapore consists of 6 months of your income. Here are 7 easy ways to build it.

With 2016 looking to be a tricky year, many Singaporeans are becoming more serious about building their emergency fund. This fund consists of six months of your income, and gives you cash to deal with a job loss, injury, or other financial emergencies.

Most Singaporeans balk at the amount required. It could, and probably will, take years to save up that much money. But with the right approach, it doesn’t have to be as painful as most people think.

What is an Emergency Fund?

An emergency fund consists of three to six months of your income (we advise six), that you should leave untouched until life throws a financial emergency your way. The fund must be kept within easy reach so you can access this money within a matter of days.

An investment in ETFs, or a fixed deposit, is not the right place for an emergency fund: you may not be able to liquidate (turn to cash) such assets on short notice, without taking a significant loss. If you withdraw from a fixed deposit before a given period of time, you will lose the interest. In some cases you may even face penalties.

This means that, most of the time, an emergency fund will be kept in a simple savings account. However, you may want to consult a financial advisor or other options.

An emergency fund ensures you will not have to resort to loans, in the event of issues like retrenchment or medical emergencies. It is not just for yourself; you can also use it to provide for family members who are facing a crisis.

Here’s how you can build a healthy emergency fund as painlessly as possible:

1. Automate the Savings Process

Set up an automated process, such as a GIRO system, to funnel 20% of your monthly pay into a separate bank account. This alternative bank account will be your emergency fund.

It is difficult to save on willpower alone. If you automate the process, the money will be out of sight and out of mind. Don’t spend your monthly paycheque first, and then count on having 20% of it left before the month is out.

2. Expand Your Income

If your income is limited (under $2,000), it can be tough to save 20% after CPF (which deducts another 20%).

For this reason, you should be active in seeking a side-income. You don’t need to make thousands of extra dollars a month; just $100 or $200 a month will make a significant difference.

See Also: 5 Simple Steps to Build a Side Income in Singapore

3. Squeeze Savings Out of Every Purchase

These days, you can compare everything from grocery prices to your mortgage rates online. Individually, these don’t account for much: paying 50 cents less for toilet paper won’t make a difference. But paying 50 cents less for toilet paper, getting $25 in cashback every month, and shaving a dollar off every coffee will all add up.

The easiest way to save on purchases is through a cashback credit card, which gives you a small discount when you use it to pay for items.

Cashback cards come in many flavours so you can maximise savings on groceries, dining, and other categories. Other credit cards offer a flat cashback rate across all purchases, which is ideal if you don't spend a lot of money on a particular category.

By saving on several small amounts, you can build up an emergency fund in a few years without too drastic an impact on your lifestyle.

4. If You're Impatient, Use the Blitz Approach

Some people can endure immense deprivation for short periods. Others can only tolerate small deprivations, but can do so for years on end. Decide which of the two you are.

If you can handle a massive downgrade on your lifestyle, for just a year or two, you may want to “blitz”. This means spending a short time saving a huge amount; you might, for example, live on just 50% of your income for the next year and a half. This could result in your emergency fund being built in record time.

Once you hit the goal of six months’ income, you can be considerably more relaxed with your savings goals.

This is easier to do if you are young and single, and don’t have a family to support (believe it or not, you can live without partying for just one year).

5. Withhold Your Bonuses Until the Fund is Built

Until the emergency fund is complete, any bonuses should be funneled straight into it. You can enjoy your bonuses after the fund is done - in fact, once the fund is complete, you will have the option to blow your bonus on any indulgent luxury you like.

After all, you would have half a year’s worth of your pay already saved. So bear with it for a little while.

6. Be Persistent

There may be times when you are forced to dig into the fund. An emergency might happen before the fund is ready, or there may be months when you just cannot contribute. Don’t let these events derail you. Shrug it off, and go on building the fund again as soon as you’re able.

Remember: if you find this frustrating, you are not alone. It is the same for everyone. Grit your teeth and go through with it.

7. Consider Using Singapore Savings Bonds

Once you have your emergency fund saved, consider keeping them in Singapore Savings Bonds.

The wonder of the SSB  is that you can cash out any month, without losing the accrued interest. If you end up not using your emergency fund for 10 years, you would have also earned interest of around 2.6% per annum. That’s not huge (it’s slightly below inflation), but at least the money won’t stagnate.

We consider the SSB superior to a standard fixed interest deposit, since it combines a higher interest rate with the flexibility to act as an emergency fund. You can obtain SSBs from participating banks. At the time of writing, these are DBS/POSB, UOB, and OCBC.

See Also: 3 Best Places to Keep Your Emergency Fund in Singapore

Building Your Savings is Addictive After the "Tipping Point"

The iconic “Scrooge” figure loves counting his money, or rolling in it. And we assure you, there’s truth to that image. Saving becomes a lot easier once you’ve reached the “tipping point” - for most people, that’s the first $3,000 (it might be different for you).

Once you have the first stack of $3,000 stashed aside, you’ll have a greedy gleam in your eye whenever you look at it. Then you’ll just want to pile more and more cash on top of it, until it takes more effort to stop you from hoarding. It’s a bit like exercise: once you start seeing results, you’ll want to keep going.

So start saving right now. It may seem daunting at first, but we promise you this: it gets easier every month.

Read This Next:

4 Bad Financial Habits Singaporean Millenials Should Outgrow
5 Reasons to Save Money (Besides Buying Expensive Stuff)
Best Citibank Credit Cards in Singapore
A Full Guide to Priority Banking in Singapore (2023)


Ryan has been writing about finance for the last 10 years. He also has his fingers in a lot of other pies, having written for publications such as Men’s Health, Her World, Esquire, and Yahoo! Finance.


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