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Emergency Fund: How much is enough?

Monday, October 21, 2013

I want to thank a former guest blogger, Winston Koh, for showing me a video clip by the famous Suze Orman on the topic of "Emergency Fund".

In case we lose our jobs, it could take us a much longer time to get a new job if Singapore goes into a severe recession. Think GFC. Think AFC.

We would need an emergency fund to tide us over and we do not want to be in a situation where we might have to liquidate our investments at depressed prices. The cost of holding an emergency fund is well worth it. There is no question about this.

Related posts:
1. Why a meaningful emergency fund is important?
2. Nobody cares more about our money than we do.
3. Don't see money, won't spend money.


My 15HWW said...

Hi AK,

I am not a big fan of Suze Orman and this video has reiterated my view. During the earlier half of the video, she mentioned that when one loses his job, he should not cut back and the emergency funds should be able to last for 8 months. But only if he can't find another job, then he should cut back and the funds should be able to last up to 16 months.

But at which point would one know he is not going to be able to find a job? And what happens after that 16 months?

To be honest, I am really unsure as to how much is enough. Should it be a quantum, a percentage of assets or framed in terms of monthly expenditure?

Guess it really depends on the purpose of the emergency fund.

Unknown said...


i know my question is not relevant to your post but i'm curious to know if you have considered buying index funds. If not, why not?


Sanye ◎ 三页 said...

Hi AK,

It has been quite sometimes since I last posted a comment, though I still continue to follow your blog.

I fully agree with you that an emergency fund is important. I used to keep an emergency fund equivalent to about 12 months of my expenses. When I was about to withdraw my CPF at 55, I decided to leave some money in the OA to form the emergency fund. This will release my cash into the warchest for investment opportunities.

AK71 said...

Hi Stoical Keynes,

Suze Orman could be saying in the video that most people don't cut back. It could be a statement of fact instead of an instruction. I am inclined to believe that it is the former. It is just the way some people talk.

Some people say 3 to 6 months. Some people say 12 months. Some people refer to monthly income. Some people refer to monthly expenses. I don't think there is a universal guideline.

I shared the video because I think it is useful to get readers thinking, especially people who think an emergency fund is not necessary. For people who have an emergency fund, this could push them to think about what they already have and whether it is adequate.

Personally, I keep an emergency fund enough for 24 months of expenses. Some call me kiasu but it gives me a peace of mind. That is what an emergency fund has to do as well, to give us a peace of mind.

What is sufficient to give us a peace of mind? This is an important question to ask as well. After all, how big an emergency fund should be is probably a very personal issue. :)

AK71 said...

Hi Cindy,

When we invest in an index fund like the STI ETF, we are investing in a basket of stocks. It has been said that over the long term, such a strategy should yield a positive return per annum.

We don't choose a stock or stocks to invest in. The decision has been made for us. So, it would be attractive to people who do not have the time or inclination for stock picking.

I rather enjoy stock picking and although I don't think I could ever be as good as some legendary investors, I would be quite happy if I am able to buy undervalued stocks which pay me decent dividends regularly. This is the ideal situation, of course. I am still learning (and making mistakes).

AK71 said...

Hi Sanye,

Long time no hear. :)

My parents also chose to leave most of their CPF money untouched when they turned 55. The interest income is higher and guaranteed. No reason to take out the money.

However, they told me that they are allowed to withdraw, if they need to, only once a year. I have not checked on this but if this is true, it is not very convenient as an emergency fund.

Singapore Man of Leisure said...


Don't you just hate it when you wear your favorite polo-t to a gathering and this goon also wear the same?

I also keep 24 months of monthly expenses as emergency fund $#@@@!$^*$@!! :(

I honestly don't think everyone needs an emergency fund.

For 5 years old, you don't need one. What was daddy thinking!?

When starting out working in our 20s, it would be a small miracle if we can don't get into debt... (Some have student loans to repay to parents.) First things firsts ;)

Life is like cooking.

Those who can will practice "add according to taste - add a bit of this and a dash of that".

Those who can't will actually measure 1 ml of soy sauce EXACTLY as according to the cookbook...

3, 6, 12, 24 months? Add according to taste :)

AK71 said...


First you shocked me with "idiot". Then, you tickled me with "5 years old doesn't need emergency fund". You are one of a kind. You should be gazetted a national treasure. LOL.

We should all "add to taste". It is a very personal matter. I agree.

We have to remember, however, that adding to taste assumes that we have something cooking in the wok in the first instance. ;)

My 15HWW said...

Hi AK71,

Indeed, we are all searching for that elusive peace of mind with our emergency funds and the amount is subjective, and highly dependent on the individual's risk tolerance and life stage.

And to add on to Sanye's point, if one has significant OA balances after 55, that makes for a good emergency fund, with good interest (match long-term inflation perhaps?)

Although you can only withdraw once a year, this can be a large lump sum withdrawal when an emergency happens. It's also good to review it just before your birthday so you can effectively withdraw "twice" in a calendar year.

My 15HWW

coconut said...

believe me or not, i don't have an "emergency fund".

as a trader, all my funds are emergency funds, for all purposes, be it in life or in trading where ever and whatever the emergency comes first.

AK71 said...

Hi 15HWW,

Ah, it is you! Haha... Your blog post was the catalyst for many recent blog posts in many blogs, including ASSI.

Thanks for reviving a boring old topic by providing a very unique point of view. :)

AK71 said...

Hi coconut,

Have liquidity will trade (and have enough for emergencies)! LOL. :)

Sanye ◎ 三页 said...

Hi AK,

About leaving your money in CPF at 55. If you are still working, you can only withdraw the money once a year. If you are out of job for 6 months continueously, you can withdraw the money anytime.

That is just right for emergency fund. ;)

AK71 said...

Hi Sanye,

Thanks for sharing this. Very useful!

My parents are still working. So, that is why they can only withdraw once a year. :)

Cory said...

Emergency fund maybe should be locked in fixed deposit for like few years at a time. If needed just draw it. Return loss is minimal while enjoying fixed returns. The mindset can be very different from common pool of liquidity which you maybe tempted.

AK71 said...

Hi Cory,

That is a good suggestion. Old fashioned but it works well! :)

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