Here’s How to Build An Emergency Fund On A Tight Budget

Emma Lam

Emma Lam

Last updated 03 April, 2024

Emergency funds primarily should consist of three to six months’ income worth of savings. But what happens if you’re on a tight budget with limited savings to spare?

It might be called an emergency fund but how well endowed are your funds actually? Considered one of the main saving pillars everyone should prioritise, the emergency fund serves as an important financial cushion to fall back upon in times of… well, emergencies.

As far as what’s classified as an emergency, it could be anything. Did your car sustain damage from a traffic accident? The pipes leaked and now your ceiling has water stains? Became unemployed and are now incomeless? Any unexpected event can be declared an emergency according to your definitions.

You wouldn’t want your main savings to be jeopardised and instead leverage on a separate set of savings to cover these sudden costs. Hence, this is why an emergency fund is essential and should never be neglected, even if you’re on a tight budget.

Table of contents

1. Think of it as paying yourself

Just as how an employer pays an employee, you should think of an emergency fund as paying yourself forward. This means that you should purposefully set up a separate account and allocate a portion of your monthly salary to it. 

By dedicating the same level of importance to emergency funds as you would regular savings, it instils a sense of discipline and diligence towards actively growing it. This simple mindset change can compel you to prioritise accumulating an emergency fund as it becomes a matter of “having no choice”. 

But if you need further convincing, think of it as investing in your future funds for greater security and assurance in times of financial hardships. The last thing you’d want is to be caught off guard and feel financially helpless.

This is especially true if your emergency funds were depleted during the first two years of the pandemic because another economic downturn — a recession — might be underway.

Related to this topic:
How to Prepare For a Recession: 11 Things You Shouldn’t Do Before or During a Recession
Best Places to Put Your Money During a Recession
A Recession Is On Its Way — Here’s How You Can Protect Your Investments

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2. Capitalise on higher interest rates

Although many banks slashed interest rates in the past year, there are still decent high-yield saving account options available. The majority of saving accounts tend to begin with a base 0.05% p.a. interest rate. In order to bump those numbers higher, accountholders need to fulfil certain conditions.

DBS Multiplier, UOB One, and OCBC 360 accounts are all popular options for higher yield.

For instance, crediting your salary and pairing an eligible UOB debit or credit card with a UOB One Account offers up to 7.8% p.a. interest for the first S$100,000 bank balance. That’s a hefty increase!   

On the other hand, DBS Multiplier Account and OCBC 360 Account also offer respectable rates of up to 4.10% p.a. and 7.65% p.a., respectively. However, they require account holders to jump through more hoops to be eligible for higher interest.

Ultimately, choosing the right savings account to open falls largely on your expenditure habits and lifestyle choices.

Savings account
Max. interest yield
  • Credit your monthly salary of at least S$1,800 through GIRO/PayNow via GIRO
  • Increase your average daily balance by at least S$500 monthly
  • Spend at least S$500 on selected OCBC Credit Cards each month
  • Purchase an eligible insurance product from OCBC
  • Purchase an eligible investment product from OCBC
7.65% p.a.
  • Have an account monthly average balance of S$1,000
  • Credit a minimum of S$1,600 of your monthly salary via GIRO in a calendar month
7.80% p.a.*
  • Credit your monthly salary and complete three or more categories (credit card/ PayLah! retail spend, take a home loan with DBS, purchase investment/insurance products with DBS)
4.10% p.a.
  • Spend at least S$2,000 on your Bonus$aver credit/debit card
  • Credit at least S$3,000 of your monthly salary
  • Make at least three bill payments of min. S$50
  • Invest in eligible products with a minimum subscription sum of S$30,000 for 12 months
  • Purchase an eligible insurance policy with an annual premium of S$12,000 for 12 months
7.88% p.a.**

*Max. interest rate will drop to 6.00% p.a. from 1 May 2024 onwards
**Max. interest rate will drop to 7.68% p.a. from 1 May 2024 onwards


Aside from high-interest savings accounts, you can also consider other low-risk and high-liquidity investments, such as the Singapore Savings Bond (SSB), Singapore T-bills, and cash management accounts. These investments offer competitive returns of between 3% to 3.5% p.a.

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3. Review your budgeting distribution

Most people use the 50/30/20 rule to organise their budgeting decisions. Referring to one’s take-home pay, the ratio breakdown is as follows:

  • 50% on necessities
  • 30% on wants
  • 20% on savings

While this is a fairly sound distribution, those on a tighter budget might want to reshuffle the percentages around. Instead of spending 30% of your income on wants, swap that with the 20% on savings. The new ratio becomes 30% on savings and 20% on wants.

Before you oppose sacrificing that 10% in spending, let the math speak for itself.

Assuming a S$3,000 take-home pay,

Total emergency fund amount to hit:
S$3,000 x 6 months = S$18,000

Difference between savings and expenditure:

  • Variable expenses: 20% x S$3,000 = S$600
  • Savings: 30% x S$3,000 = S$900

Extra monthly savings: S$900 - S$600 = S$300

You will only need to save S$300 more of your monthly salary to hit this proposed percentage. Without forgetting your existing savings, this additional S$300 can be streamlined into your emergency fund. It’s as straightforward as that.

So you can expect to rack up your emergency fund’s target amount anywhere between 20 to 60 months, according to how much is contributed to it monthly. If you can afford to increase your monthly cash flow towards your emergency fund, we highly encourage you to!

As for why we don’t recommend infringing on the 50% necessities allocation, it’s because they typically consist of non-negotiables like groceries, toiletries, utility bills, transport, insurance premiums, and more. These are non-variable, recurring expenses that are essential for survival. 

But that’s not to say it’s impossible to cut costs for necessities. Supermarkets in Singapore vary in price ranges, available selections and promotions. In fact, if you’re an avid bargain hunter, online grocery shopping might be more up your alley — earning you more savings and rewards with the abundance of constant sales and discounts ongoing.

Best of all, leverage on a trusty grocery credit card or cashback credit card to maximise discounts and cash rebates and you’re good to go. 

💡 Pro-tip: To be more disciplined, opening multiple savings accounts to categorise your expenditure and savings is an effective budgeting strategy. 

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4. Automate the saving process 

Speaking of savings, automating the transfer process each month will do wonders for your savings contribution. Manually remembering (and overcoming the inertia) to transfer funds from one bank account to another can be a struggle sometimes. 

Also, it presents opportunities for excuses to crop up. Thoughts like “Oh, I feel more lethargic from work this month, I deserve to treat myself a little more” and other similar ideas are common excuses and so easy to succumb to.

As a result, set aside a certain amount of cash at specific intervals to be dedicated as automatic recurring transfers. This could be on a random day or week or even better, your payday itself. 

Ostensibly, there’s really no reason why you shouldn’t be doing this. Firstly, it diminishes the hassle of manual transfers. Secondly, you’ll experience the joy of watching your emergency fund undoubtedly grow. It’s a win-win situation.

Work hard, work smart, and let your money work even more for you.

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5. Adopt more frugal habits

Look, we understand that penny-pinchers are generally frowned upon for being stingy with money — sometimes to an unnecessary extent. But the truth of the matter is, if you’re tight on a budget, desperate times will sometimes call for desperate measures.

There’s nothing inherently wrong with being thrifty or spending sparingly. In fact, practising frugal spending habits or being prudent with your money is in all aspects, financially sound. 

When you’re young, it’s normal to want to live your best life and spend on purchases or experiences that bring you joy. However, therein lies the pitfall when too many people spend lavishly without properly accounting for their finances.

Without proper monitoring, people tend to give themselves too much leeway or excuses to be frivolous with their purchases. They neglect to stash away funds for a rainy day and end up spending beyond their means. This results in major financial struggles in times of emergency or crisis, which is exactly what building an emergency fund is for, isn’t it?

So it’s okay to be slightly more thick-skinned and search for extra dollars and cents wherever you can. 

Examples of being more frugal include saying no to those weekly friendly dinners or cancelling streaming subscriptions you don’t use enough. Turn the other way from clothing price tags and start staying home more. 

Habits are not formed overnight. Old habits die harder. Experts often surmise that it takes at least 30 days of repeated action to establish a new habit. And unless your motivation is easily sustainable, discipline is most likely the key ingredient that’ll help you stay on track.

It won’t be easy, but it’s all about taking small steps and beginning from the little actions.

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Related to this topic:
5 Habits of Super Frugal People You Should Follow If You Want to Save Money
20 Money Habits Singaporeans Should Have By Age 30
Money Confessions: I’m a Singaporean Bargain Hunter And I Never Pay Full Price For Anything

6. Build wealth through multiple channels

In personal finance, there’s wealth preservation and wealth generation. These two concepts are self-explanatory, but what do we understand about the steps behind them?

Emergency funds fall under the wealth preservation segment but establishing multiple income streams fall under wealth generation. For the common man, the principles of wealth generation usually pertain to investing.

Building passive income through investment portfolios is quickly becoming everyone’s bread and butter in this economy. The initial startup requires action on the individual’s part, but once the foundation is laid, the money — say it with us now — works for itself.

Key characteristics of such portfolios tend to be defined by their asset diversity and stability. Assets like exchange-traded funds (ETFs), unit trusts, blue chip stocks, mutual funds, bonds, and real estate investment trusts (REITs) accord shareholders with dividend payouts, regular coupon payments and the like.

Furthermore, the one thing in common these assets have are their stable, low-risk profiles. This makes them ideal for beginner investors and those with low-risk tolerances in general. 

The rationale behind a diverse basket of securities like these is to spread out the risks across the different asset classes. This ensures that even if one stock or asset underperforms and incurs losses, you still have plenty of other assets to fall back on.

As long as your portfolio yields at least 4% in returns to compensate for inflation, hopefully, you can sleep a little easier at night.

Apart from investing in the stock market, investing in a side hustle is another avenue to explore too.

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So how will your emergency fund turn out?

While the general rule is to have at least three to six months' worth of emergency funds, this differs from one individual to another. The most important aspect is having sufficient savings so that you have something to tide you through during unexpected emergencies or crises, such as a job loss, repairs, or medical expenses. 

These funds will carry you through unexpected expenses that would’ve otherwise depleted your current cash stash. Although saving on a tight budget is much harder, when push comes to shove, prioritising an emergency fund is not up for debate.

💡 Pro-tip: Don’t forget to store your emergency fund in an account with high liquidity. The last thing you’d want is to run into an emergency and well, be unable to liquidate your funds when you need them the most.

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Read these next:

8 Ways to Stretch Your Budget in a One-Income Household
9 Ways to Hedge Against Inflation With Investing
15 Ways Life is Financially Different Today For Singaporean Millennials Than Previous Generations: 1990s vs. 2020s
3 Best Places to Keep Your Emergency Fund in Singapore
How to Build a Robust Emergency Fund in Singapore



Although she struggles *slightly* in resisting good deals and sales, Emma is on a lifelong journey to understand what financial independence as a Z-llennial means. That said, her inner child is still very much alive… with animals and gaming being her weaknesses.


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