Saving Strategies: Building an Emergency Fund and Paying Yourself First
Building an emergency fund and “paying yourself first” are two saving strategies that can make a big impact in one’s financial well-being in today’s fast-paced and uncertain financial environment.
An emergency fund acts as a financial buffer during unforeseen circumstances that require unplanned expenses such as medical emergency, home repairs or sudden job loss. Having an emergency fund helps protect you from financial stress against any other anticipated events. One can start building up an emergency fund gradually by saving a portion of their salary to develop a reserve that can cover at least three or six months of living expenses. This fund ensures that during unforeseen events, there is no need to dip into regular savings or rely on credit cards to get by. It is recommended to keep this fund in a separate bank account strictly to be used only during emergencies.
The concept of “Paying Yourself First” involves prioritising savings over spending by setting aside a portion of one’s salary to savings as soon as they get it rather than saving whatever is left after paying for essential bills and other financial commitments. Set up automatic transfers to a separate bank account specifically for savings is a recommended way to kick start this healthy habit. This will not only provide consistency but can also help reduce the temptation to overspend. Even if you can only save a small amount each month, that’s a good start and as you continue to save, you can gradually increase the amount.
For these two strategies to work, it is important to create a realistic budget that accounts for necessary expenses and spending within your means. Minimising discretionary spending and find ways to cut unnecessary costs to free up more money for saving. By incorporating these habits into their financial goals planning, individuals can foster financial resilience and enjoy peace of mind knowing they are better prepared to handle various financial setbacks that may come their way.
Credit Counselling Singapore
Published 11 August 2023.