Emergency Fund that everyone should have!

When the future is uncertain, we won’t know what is going to happen next such as the recent COVID crisis or even the ongoing economic recession. A stable career that could suddenly disappear one day without us knowing and income is shrinking, but expenditure is increasing. Having an emergency money reserve is like having an emergency plan in life for us to live through difficult circumstances, regardless of whatever crisis it is. Today, ACU PAY will make all of you have a better understanding about the Emergency fund that everybody should have. 

What is an emergency fund?

It is a savings that can be used immediately if an unexpected event occurs or there is an urgent incident that needs money suddenly without being able to plan in advance such as an accident, a car needing urgent repair, sudden loss of work or emergency surgery, etc.

How much of the Emergency fund is considered good?

Initially, we should have emergency reserves of 3-6 times the monthly expenses, including daily expenses and monthly savings that we have targeted. The first step should calculate fixed costs per month, such as;

  • Housing rentals, electricity bills, telephone bills, membership fees, and other monthly expenses.
  • Travel expenses and fuel bills.
  • The cost of food, medicine (regular use)
  • Insurance premium and loan
  • Monthly savings, investments and retirement savings (including provident funds, social insurance, etc.)
  • Monthly allowance to parents

For example, If the total cost is 40,000 baht, it is better to gradually collect at least three to six times the cost and savings or around 120,000 – 240,000 baht or more.

Another step is to determine the period of this saving of how many months you can keep it. The advantage of always including monthly savings in the calculation is that it will help you reach your long-term goals without interruption in life’s emergencies.

For example, if we set out to collect an emergency reserve of 200,000 baht but already have 50,000 baht in cash, it means that we have to save up to 150,000 baht more.

If the target is to collect this fund within one year or 12 months, the calculation method is to take 150,000 baht from the amount you want to collect divided by 12 months, which means you have to divide your money to add into the emergency fund for 12,500 baht per month.

In this regard, the calculation of emergency funds may depend on other variables such as career, coverage of insurance money, age, or even other income. For example;

  • Mr. A, 26 years old, worked as a freelance graphic designer for more than 3 years with uncertain income because the income depends on the time the customer hires. Mr. A should have emergency reserves of at least 6 months to cover various expenses in case there are not many new projects.

Another example;

  • Mr. B, 45, works as an IT specialist and plans to make a down payment for new homes. He has received numerous benefits from companies such as travel expenses, group health insurance and severance pay. Even if his career is stable, he should have at least three months of emergency reserves in case of layoffs and no other benefits.

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