“Make preparations in advance – you never have trouble if you are prepared for it.”
Theodore Roosevelt
How Much Emergency Fund Do I need?
If you are single with no dependent
At least 3 months of your monthly expenses.
Example: If your monthly expenses (loans, food & beverage, transportation, accommodation, insurance, etc) is RM 3000, you should have at least RM 9000 (3 times of RM 3000)
If you have dependents (parents, spouse, kids)
At least 6 months of your monthly expenses.
Example: If your monthly expenses (loans, food & beverage, transportation, accommodation, insurance, baby diapers, , etc) is RM 5000, you should have at least RM 30,000 (6 times of RM 5000)
If you have dependents (parents, spouse, kids) + working in industry with high retrenchment rate
At least 12 months of your monthly expenses.
Example: If your monthly expenses (loans, food & beverage, transportation, accommodation, insurance, baby diapers, , etc) is RM 5000, you should have at least RM 60,000 (12 times of RM 5000)
Not sure of how long your emergency fund can last you? Read at https://sooyee.com.my/2019/03/13/how-long-is-your-runway/
Where Should I Keep My Emergency Funds?
Emergency fund is meant to be liquid, easy to access.
You can keep them in the following account with different proportions.
- Fixed Deposit
Spread your money into separate Fixed Deposit placements.
For instance, spread RM 9000 into 5 certificates (based on your preference)
RM 1000 – 1 month tenure
RM 2000 – 1 month tenure
RM 2000 – 2 month tenure
RM 2000 – 2 month tenure
RM 2000 – 3 month tenure
The idea above is to cater to time of emergencies needing small amount of money (example RM 1000). You will only forfeit the interest of one fixed deposit placement.
Imagine, if you have put RM 9000 into single fixed deposit placement, and you will need to uplift RM 9000 for small emergency RM 1000.
2. Money Market Fund (Choose Fixed Unit Price Fund)
3. Amanah Saham Malaysia (Choose Fixed Unit Price Fund)
Read more on Money Market Fund & Amanah Saham Malaysia https://sooyee.com.my/2019/05/22/where-to-stash-your-money-for-property-purchase/
4. Semi Flexi/ Flexi Home Loan Account (if any)
You can opt to keep part of your emergency money into semi flexi/ flexi home loan account as it will reduce interest payable on your house loan principal.
Home loan is calculated based on reducing balance method.
For example, if you home loan is RM 500,000, and you put RM 100,000 cash into the account, you will be charged based on RM 400,000 ( RM 500,000 – RM 100,000).
You can withdraw this RM 100,000 for emergencies. Each bank has different processing time and method. Check with your banker and understand how long does it take to withdraw.
Placing your money in this loan account kills two birds with one stone.
- Reduces home loan interest
- Serves as emergency funds
How Should I Allocate My Emergency Fund?
Allocation can be done differently based on your preference.
For instance:
With no home loan
100% into fixed deposit
OR
40% into fixed deposit, 30% into money market fund, 30% into Amanah Saham Malaysia
OR
Any allocation that you are comfortable with
With semi flexi/ flexi home loan (for own stay) – not for investment purpose
50% into home loan, 30% fixed deposit, 20% money market fund
OR
Any allocation that you are comfortable with.
At the end of the day, it is all fine as long as the fund is liquid and easily accessible during emergency times.
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