All you need to know about your Emergency Savings aka Rainy Days fund.
What are Emergency Savings?
Emergency savings like its name is to ensure you have a sufficient amount of liquid savings as a buffer in case of emergencies. We define emergencies as unexpected occurrences which incur significant spending.
Examples of Emergency Funds Usage
- Loss of employment
- Unexpected car accident/breakdown and repairs not covered by insurer
- Hospitalization bills (get insured if possible before this happens!)
How much Emergency Savings do I Need?
A rule of thumb is for 6-12 months emergency savings.
It also depends on your current situation and whether you have any dependents:
- No dependents: 3 – 6 months
- Have dependents / sole income provider in family: 6 – 12 months
- Retired: 60 months (5 years)
Consult your Personal Finances Advisor for more detailed planning.
Where should I keep my Emergency Savings?
Your emergency savings need to be kept liquid and easily accessible in times of emergency. The focus is thus not on returns but on accessibility (and hopefully giving you some returns)
- 1st 3 months equivalent: savings / current account immediately accessible (you can also consider a FD that you can immediately uplift and withdraw anytime)
- Next 3 months equivalent: FD account (can place on 12 month FD for better rates if you are pretty sure you will not touch the funds unless it’s a real emergency)
- Amounts above 6 months equivalent: FD accounts (can consider placing in your primary residence home loan, if applicable, and if rates are better than FD)
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