How to raise an emergency fund can be challenging for everyone. The reason is that emergency funds are often considered unimportant and more concerned with making other expenses. But behind the difficulty of setting aside an emergency fund, so many benefits can be generated from the emergency fund you collect.
To be able to collect an emergency fund, you must make your expenses regular. By managing expenses, you can find out how much money you spend each month.
That way, you can find out how much of your expenses are left and set them aside for an emergency fund. So, what is an emergency fund and its benefits for life? Check out the following reviews!
What is an emergency fund?
An emergency fund is a fund or money that is deliberately stored and prepared so that if an emergency occurs at a later date, the emergency fund can help you in many ways.
Emergency funds are also often interpreted as funds originating from monthly income set aside in an account to pay for all unexpected expenses in the following months. Starting from expenses incurred due to illness or damaged vehicles.
Is it essential to prepare an emergency fund?
An emergency fund is an anticipatory attitude toward the possibility of an emergency that will occur in the future. Therefore, it is crucial to prepare an emergency fund. The 2020 report by the Organization for Cooperation and Development (OECD)/INFE in the International Survey of Adult Financial Literacy shows that almost half of Indonesia's population (46%) can only survive for a week if a crisis occurs. As many as 18% were able to survive for 1 month, 5.8% were able to survive for 3 months, and 8.6% were able to survive for more than 6 months. While 21.6% of respondents said, they did not know.
From this, an emergency fund is one of the most important things that we must prepare to deal with the worst possibility or emergency situation in the future.
So, who should set up an emergency fund?
An emergency fund is a fund that every individual should prepare at this time. However, not everyone can set aside part of their income for an emergency fund because of many needs. But for those of you who have a family, an emergency fund is mandatory for you to prepare to anticipate financially if something happens in the future.
What is the nominal amount of the emergency fund that must be prepared?
The number of emergency funds that must be prepared for each person is certainly different. This is influenced by the income generated and the monthly expenses they usually spend.
Apart from that, the difference in the nominal amount of the emergency fund is also influenced by each individual's lifestyle and the profession they live in. There are no fixed percentages or numbers to determine how much emergency funds you should prepare.
But for an easy illustration, you can set up an emergency fund of 6 to 12 times the monthly expenses you normally spend. However, the calculation of emergency funds also depends on the conditions of each individual. You can use the following emergency fund calculation details:
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Single: 3 – 4 times the regular monthly expenses. The assumption is if you don't have any income, you can still live without reducing your lifestyle for the next 3 to 4 months.
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Married without children: 6 times the regular monthly expenses.
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Married, 1 child (dependent): 9 times the monthly routine expenses.
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Married, 2 children (dependents): 12 times the monthly routine expenses.
The calculation above is considered sufficient to keep an emergency situation safe for a certain time with the emergency fund you have prepared. But for an easy illustration, you can set up an emergency fund of 6 to 12 times the monthly expenses you normally spend. This is felt to be enough to keep emergencies safe for a certain time with the emergency fund that you have prepared.
When is the right time to raise an emergency fund?
There is no right time to be able to answer the question of when emergency funds should be collected. An emergency is a situation that no one can predict, even yourself. For this reason, you need to collect or set aside an emergency fund as soon as possible.
How to collect an emergency fund from a salary or monthly income?
If you are not one of those who can manage expenses well, collecting an emergency fund is not easy. You will find it difficult when you have to be consistent with the emergency fund savings that you have prepared.
For that, here are some ways to collect emergency funds that you can do both with your salary and other monthly income:
1. Re-check monthly income and expenses
This is important for you to do so that collecting emergency funds is manageable for your current cash flow. Because that way, you will know in detail how much money you should set aside to become an emergency fund.
It would be even better if you kept detailed records and bookkeeping of your finances. That way, you can exercise complete control over your expenses, reduce some of the expenses that you consider unnecessary, and move these non-essential expenses into an emergency fund.
2. Set aside unnecessary expenses
In managing monthly finances, it is not common to feel that some expenses are unimportant. Starting from hanging out, shopping, or just buying things that are not really needed.
One of the best ways to raise an emergency fund is to break the habit. By reducing non-essential expenses, you can set aside quite a bit of money each month.
3. Immediately set aside money after getting a salary
Another best way to raise an emergency fund is to set aside your monthly income for emergency fund needs immediately. You can directly set aside as much as 10% to 20% of your income.
By doing this, you can avoid the reason your income is used up, and you can't set it aside for an emergency fund. How to collect emergency funds on this one is also very reliable for beginners who still need help with consistency.
4. Create a Special Account for Emergency Funds
Placing an emergency fund in a separate account is one of the most effective ways to collect emergency funds that you can do. By separating accounts designated explicitly for emergency funds, you can optimally make the portion of the emergency fund that you have prepared. In addition, you can avoid accidentally using emergency funds for daily needs.
You can also create several other emergency fund accounts with different purposes. Especially if you have an unstable job, you can create another emergency fund to prepare if something happens one day.
5. Manage cash flow properly before setting aside an emergency fund
Before setting aside an emergency fund, it's a good idea for you to manage your financial cash flow every month as well as possible. By making good financial planning and cash flow, you can find your monthly needs and expenses in detail.
6. Use the Free Transfer Feature
Transfer fees are often a big expense that we don't realize, especially if the transfer frequency is quite frequent. You can save the amount of the transfer admin fee and collect it as an emergency fund. You can use the free transfer feature, like in MAS Mobile, to reduce your expenses and help you collect emergency funds. You can also use this free transfer feature to transfer funds from your main account to an emergency fund account that has been prepared.
7. Try the auto-debit feature from the main account
Many of you need to get used to making a portion of expenses every time you get a salary or monthly income. This also impacts expenses not set aside for several needs, including an emergency fund. The auto-debit feature will help you remember to set aside an emergency fund every month.
Prepare your emergency fund with MAS Mobile!
An emergency fund is indeed a necessity for every individual to anticipate emergencies that can occur at any time at an unpredictable time. With an emergency fund, many things can be helped when an emergency occurs. But to collect it, it takes discipline and consistency so that an emergency fund can be collected according to your needs.
MAS Mobile can help you collect your emergency fund easily. Not only for emergency funds, but you can also use MAS Mobile for various financial activities very easily. Click the button below to download the MAS Mobile application!
