Why do you need an emergency fund?
There are generally three main reasons why you should have emergency savings:
i) Illnesses – Life can always take an unexpected turn, and you may be surprised that you need more than you imagined in times of crisis. According to the ASEAN Costs in Oncology (ACTION) study by the George Institute for Global Health, 46% of cancer patients have used up their personal savings one year after diagnosis. Every year, there are more than 30,000 new cases of cancer, let alone other diseases . [Source: Malaysiakini, 6th November, 2015, (https://www.malaysiakini.com/advertorial/318645)]
ii) Job losses – Jobs may not be as secure as we imagine. In 2015, as global oil prices fell, Petronas and other oil and gas firms had to lay off many employees in order to cut down costs. Some firms went bankrupt altogether.
iii) Repairs – If you own a house or car, there may come a point where you may be hit with a significant repair bill. You want to be sure that you have enough emergency savings to cover these expenses.
On top of having an emergency fund, don’t forget to find a suitable life and medical insurance policy to suit your current situation and needs. This way, your emergency savings won’t need to cover all your expenses if something unexpected happens, the insurance will also provide you with financial protection.
*Assumes a 3% interest rate per annum, with interest paid annually, and retirement at age 65