It doesn’t matter whether you’re single or married, newly employed or working in the same firm for many years. An emergency fund is not only a good idea but a very smart one.

Let’s define what an emergency fund is, first of all. According to Investopedia, “An emergency fund is an account for funds set aside in case of the event of a personal financial dilemma, such as the loss of a job, a debilitating illness or a major repair to your home.”

It’s the money you tuck away for the unexpected curve balls life sometimes throws at you. It’s a mark of maturity, as well as personal savvy, to realise that in everyone’s life difficult times come.

Therefore the best thing at that moment is to be prepared. With an emergency fund you and your family have a safety net until you’re back on your feet. It will help you sleep better and remove potential anxiety and stress when times get tough.

But wait, isn’t that what insurance is for?

Yes, and no. But only because insurance doesn’t cover everything. And even if you do have insurance policies (and everyone should), you still need accessible cash for your expenses in the short term.

Yes, this is true even if you’ll eventually be reimbursed for what you have spent on a particular emergency.

Married women have a joint emergency fund with their husbands since that fund is for the family. But don’t wait until you’re married because you don’t know when that will happen.

Ideally, the best time to start building your emergency fund is when you start your first job.

How much is needed in an emergency fund?

Experts say the fund should at least have three to six months’ worth of expenses tucked away for a rainy day.

If you’ve only just begun working, and your expenses are considerably less, three months is a good place to start.

But if you’re older and already have a family, you’ll want the fund to be bigger. Aim for six months’ worth of expenses squared away in a separate emergency fund account.

How do I start building up my emergency fund?

As with many things financial, begin with your budget. If you have never made a budget, here’s a simple but foolproof way to start.

• Calculate how much you spend in a month. Grab a cup of tea (or a glass of wine) and write down your non-essentials for the month.

• Include everything you spend on housing, food, transportation, utilities and everything else that you need for daily living.

• If you have kids then you will have to factor in childcare and education expenses as well.

Pro-tip: Add a small percentage on top of the total amount to prepare for inflation and/or miscellaneous needs. In other words, don’t just go for the bare minimum. You want to be comfortable even in times of crisis, not just have a subsistence existence.

When you have that figure, multiply it by three, or six, and you’ll know what’s needed for your emergency fun.

Don’t get overwhelmed if the figure looks too large. Remember that we all have to start somewhere. Just the fact that you are setting aside money for a rainy day is a sign that you are choosing to be smart about your life.

Now I know how much I need, but then what?

With the total figure in front of your eyes, go back to your budget. Are you following the simple 50-30-20 principle in budgeting?

This method has 50% of your income going to sustain your needs. 30% goes to discretionary expenses and 20% to savings.

From that 20%, why not allocate half toward your emergency fund until the amount you need is achieved?

That’s equivalent to 10% of your income. You won’t feel the pinch because your expenses will not be affected. You’ll just be directing your savings toward a specific account for a certain amount of time.

But if you’re saving up for something special, you may not want there to be a delay in getting it. Go back to your expenses.

There’s not a lot you can do with your necessary spending, right? So take a look at your discretionary spending, and see where you can cut corners.

Is it forgoing movie night with the family or friends? Is it brewing your own coffee and bringing it in a commuter cup each morning?

You can give up your favourite half-caf caramel macchiato with whip cream and three sugars on your way to work.

Or maybe you can remove that ride-hailing app from your mobile phone for a while? This will force you to take the bus or train, rather than booking a Grab to take you places.

Maybe you’ll reach a happy compromise and take 5% from your discretionary spending. Add this to another five from your savings allocation in order to build up your emergency fund.

Either way, you’re on your way to getting your safety net fully in place.

Final words of wisdom

Keep your emergency fund in a separate account that you’ll discipline yourself not to touch unless it’s a real emergency.

Maybe you don’t want to go through the trouble of creating another account, and prefer keeping your money in one place. It’s easy to keep track of your regular savings and how much should be in your emergency fund, right? Honestly, that never works.

With your busy life, the more organised you can be, the better. If your emergency fund is in your regular account, you will end up using it.

This article first appeared in thenewsavvy.com

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