How much goes into an emergency fund? How prepared are we for when something unexpected happens and we’ve got to foot the bill? In episode 2 of Keep It Simple, our hosts discuss their own emergency funds and methods that help them save money, including the 50/30/20 rule. Here’s a quick roundup of some key points:
What Constitutes a Real Emergency? (2:15)
- Medical emergencies (accidents, food poisoning, etc.)
- Losing a job; getting fired or retrenched and losing your monthly income
- Equipment breaking down as emergencies: If a laptop breaks down but you have deadlines, then that’s an emergency because you’re using it everyday
- People may feel like these events won’t happen to them, until it actually does
How Many Months of Income is Your Emergency Fund? (4:00)
- Calculate the fund in terms of your expenses
- But your expenses might increase in the future, so that number may change
- Typically, three months’ worth of expenses is a good starting point; if one loses their job tomorrow, they’d be able to hold out for a couple of months before getting employed again
- Up to six months is a good ballpark amount, because we don’t want to channel too much money away unnecessarily
- Millennials are still very employable
Saving: The 50/30/20 Rule (8:05)
- It’s a rule people have definitely heard of before and use to allocate their monthly income to save
- 50% goes to essentials, 30% goes to wants, and 20% goes to savings
- But if you’re very familiar with your spending habits, then you might not have to lean so much on this rule for guidance
Other Tips to Save Better (14:00)
- Be aware of how you spend and how you save
- It’s important to have a plan, so we’ll know what to expect without mindlessly spending money every month
- Plan your purchases in advance
- Transfer your savings to a bank with bad UI to discourage you from withdrawing it (19:00)
- Separate saving accounts are useful to help you save better
Listen to the full podcast episode
here.
