Building an emergency fund allows you to have ample money on hand when the need arises. Applying for a fast cash loan in Singapore is convenient, but it comes with interest.
Ideally, the size of your emergency fund should be equivalent to three to six months’ worth of your liabilities and regular expenditure for basic needs. Saving up for it is not an easy proposition, but it is a necessary undertaking to achieve financial freedom in the Lion City truly.
Once you have built a sufficient emergency fund, it can be tempting to touch. You should know the things it is not meant for if you want to avoid misusing it. For starters, you should not spend your emergency fund if the expense in question has the following characteristics:
It Is Not Urgent
An emergency fund is for emergencies. You should only use this type of savings out of desperation. If an expense is not exactly time-sensitive, strongly consider saving up for it. Otherwise, you might run out of enough funds when a real financial emergency happens.
It Is Not Unexpected
Preparing your finances for unplanned expenses is paramount. However, running into a designer bag or an expensive pair of shoes you love unexpectedly does not fall into the “unplanned” category.
Medical needs and home repairs are some of the things you know you might encounter at some point but can’t precisely tell when. Budgeting for them is a sign of maturity, but you should never take money from your fund for expenses that can wait and you can plan for.
It Is Not Necessary
Luxuries are wants, not needs. If you can live without buying or paying for something, then it is a luxury. Some requirements are more annoyances than necessities, so do not be too quick to justify a significant expenditure.
It is imperative to touch your emergency fund only when it is needed. If you are unsure whether something can be considered a legal contingency, think about the consequences of not using your money on it. If you will not be in trouble with anyone, especially with the law, then it is probably better to put off such an expense.
It Does Not Threaten to Harm Your Credit
Establishing good credit is usually harder than building an emergency fund. Once your credit is ruined, it can take years before you can bounce back and put yourself in a good position to borrow money with favorable terms.
If your financial obligation does not compromise your creditworthiness, though, maybe you should not use your emergency fund. If an unpaid bill does not get reported to the Credit Bureau Singapore, you have more latitude in repaying it without worrying about your image in the eyes of creditors.
It usually takes a lot of time and a ton of discipline to build an adequate emergency fund, so do not drain it for no good reason. Put it in a different bank account to keep it separate from your other funds and safe from yourself.