Plan the stages that take you from a starter buffer to a full emergency fund.
Open your banking app and look for the standing instruction that pays your most expensive debt every month. Write down two things: how much it sends and which day of the month it leaves your account. Once that debt is paid off, you keep both of those as they are and change one detail, the account the money lands in.
Paying off your last credit card is worth celebrating, but the day carries a risk. The money that used to go out each month now has nowhere set aside for it, and money with no set place usually ends up spent on meals out, shopping and weekend trips within a couple of months.
When your expensive debt is gone, keep the standing instruction running and switch its destination to your emergency buffer account. The amount stays the same, the payday stays the same, and nothing else in your budget moves. You have already spent months getting by without that money, so as long as the transfer carries on to its new account, it never shows up as money you can spend.
Wei Ling, the example person used throughout the course, is working through the plan in lesson 5.4, which lays out her timeline month by month. Her starter buffer, the small first buffer she built, is S$1,000 (an invented figure, like all of hers) and has been in her account since month 2. Her credit card takes S$570 a month until she pays it off in month 8. On payday in month 9, that S$570 starts going into her buffer account instead, and the rest of her budget stays exactly as it was.
Do the same each time another debt finishes: add what you were repaying to the buffer transfer. Wei Ling still has a personal loan costing S$300 a month, which runs until month 18. Once it is paid, she puts that S$300 on top of the S$570, and from month 19 her buffer grows by S$870 a month.
A complete emergency fund is often several months of essential costs. If you start at S$1,000 and aim for over S$8,000, the goal can seem so distant that it is hard to stay interested. Milestones split that large figure into stages, and reaching each one counts as a real achievement.
Each milestone is a multiple of your essential costs: the amount you would still need to pay in a bad month once every want had been cut. This covers rent, bills, insurance, transport, groceries, money you give to family, and loan repayments. For Wei Ling it comes to S$2,055 a month, made up of:
Rent S$950 Bills and premiums S$135 Transport S$110 Groceries S$260 Support for her parents S$300 Loan S$300
A typical sequence is one month of essential costs first, three months next, and then your full target if it is more than three months. Each stage covers a bigger problem than the one before. A month of costs will handle a large repair, a hospital excess or a short spell between jobs. Three months is enough for most job searches. Your full target covers anything beyond that which your own circumstances call for.
Wei Ling has four milestones: S$1,000 (her starter buffer), S$2,055 for one month, S$6,165 for three months, and S$8,220 for her full target of four months.
The right number of months depends on how steady your income is, who relies on you, and how long finding another job could take. Wei Ling settled on four months. Her parents count on the S$300 she gives them each month, so if she were out of work, they would feel it too.
Her essential costs drop by S$300 once the loan ends in month 18. She keeps her targets where they were anyway, because a buffer that ends up a little larger costs her nothing and she likes having the extra margin.
If you have not picked a full target, use three months of essential costs as a stand-in for now and revisit it later. For a step-by-step way to make this decision, go to module 3 of The Singapore personal finance system, end to end, Build an emergency fund that fits your life, beginning with lesson 3.1, How big your emergency fund should be.
Your buffer needs to do two things that sit slightly at odds. You must be able to get at it fast when something goes wrong, and you also want it out of view day to day, so it is not slowly spent. So keep it in a separate account you can withdraw from within a day but do not look at every time you pay for something.
Many people use an account at a different bank from their everyday one, with no debit card attached. Money can still be transferred into your spending account on the same day, but the balance does not appear on your main banking screen, so it is not in front of you when a flight sale comes up.
Hold the money in a savings account or another deposit that is similarly safe, and avoid any investment whose value can drop. You can check whether your deposit is covered by the Singapore Deposit Insurance Corporation. Lesson 3.2 of The Singapore personal finance system, end to end, Where to keep it: safe, liquid and separate, shows how to check that cover and explains what does not count as an emergency fund.
Before you go further, use your budget to work out your own essential monthly costs, because every milestone you set is a multiple of that figure.
Write down your buffer milestones from the starter amount to the full target, and the essential monthly cost each one is based on.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).