When it comes to building a secure and strong financial foundation for you and your loved ones, planning for an emergency fund is the first and crucial step. Not only does this fund provide a strong base for you to invest in some high-risk assets, but also gives support during unforeseen circumstances. Read on to understand the role of savings account in emergency fund planning.
Why should you have an emergency fund in a savings account?
With the ever-changing landscape of economy, inflation and various other scenarios, the need to have funds that are easy to access and can assure your sustenance becomes more important. However, many would consider investing their earnings in assets that are far riskier for the chance of earning more.
Unlike stocks, mutual funds or other investment options, building your emergency fund in a savings account ensure that the amount not only stays safe, but also grows and is easily accessible.
This provides you with more financial freedom which let’s you spend or invest anywhere you desire.
What are some things that one should consider when planning for emergency fund?
Whether your car needs repair or you are making a change in your job, having the assurance of a good emergency fund brings peace of mind that is much needed during any mishaps. Build an emergency fund that is robust and at the same time versatile, these are some things that one should consider:
Consistency
One of the most important aspects of building an emergency fund is having a consistent and disciplined habit of investing their earnings. This can be a challenge for individuals who are living pay check to pay check. However, even contributing a small part of income can be helpful in long term.
Safety
When building a fund, ensuring the safety of your money is paramount. This is where savings accounts stand out as a reliable choice compared to other investment options. Savings accounts are backed by established financial institutions and are regulated by government policies, offering robust protection against theft or financial discrepancies. Additionally, credible banks like DBS Bank provide easy access and monitoring, and best-in-class features, allowing you to review your funds effortlessly and enjoy convenient banking.
Liquidity
Accessibility is a crucial factor when building a financial safety net. It’s essential to have the flexibility to withdraw savings or transfer funds whenever needed. Unlike fixed deposits or other investment options that impose lock-in periods or penalties for early withdrawal, a savings account offers a hassle-free and seamless solution.
Growth
Saving to build an emergency fund is a wise practice but ensuring that your fund grows over time is even better. To achieve this, consider options that allow your savings to grow without exposure to volatile market trends. A high-interest savings account is an excellent choice, offering both security and steady growth. Additionally, some savings accounts provide the flexibility to automate savings into a recurring deposit, enabling you to boost your funds further with attractive interest rates.
How much should you save for having a sufficient emergency fund?
Now that we have covered everything one should know about planning an emergency fund with a savings account, the only question remains is how much amount is considered ideal for emergencies? While there is no one size fits all answer, there are a few things that one can consider when saving for emergencies.
If you have more dependencies with you being the sole earner, you will need to have at least six to eight months. Factors such as rent, utility bills, healthcare are also some of the things that should be taken into consideration when deciding the amount you need to have saved.
If you are planning to move or a change in career, then the cost to live should also be considered. At the same time global emergencies like one in 2020 has shown that one should plan to have funds to sustain themselves for over a year. Put it simply, your emergency fund can be any amount that you feel you need for comfortable living.
Final Thoughts
A savings account serves as an excellent foundation for emergency fund planning. It offers a safe and accessible place to store your funds, ensuring you’re prepared for any unforeseen circumstances. Its versatility makes it a preferred choice, allowing you to grow your savings with competitive interest rates. Additionally, it provides a convenient gateway to invest in other high-yield savings options, enhancing your financial preparedness.
