Another important component of a ‘complete’ financial plan is having a contingency plan. An important element of that contingency plan is by having an emergency fund (i.e. some money set aside for those rainy days).
It is indeed important to have some significant money set aside just in case something bad happens like major car repairs, major home repairs, urgent surgery, and etc. Yes, having insurance can cover these instances but sometimes, you yourself need to pay first before claiming from your insurance company. Plus, sometimes, it can get a long time for your claims to be processed. Who knows, you might even have problems with your insurance policies?
So, how much money should be left aside? It all depends on the individuals. 6 months worth of your expenses is fine. 12 months is better. 18 months worth of expenses is even much better! The idea is, the more you have, the better.
Where should you park this money? Under the pillows maybe? Hell no!
Personally, for me, I’d choose a place where the money would earn some interests (or dividends for that matter), and the place is hard to access but at the same time, easy to access IF NEED BE. What do I mean by this? Well, make sure it is hard for you to spend that money on useless things (a.k.a. luxuries/wants) but easy to withdraw/use if the needs arise. This means, try not to link the account where the money is parked with ATM/EFTPOS cards, or internet banking. Maybe internet banking might not sound like a bad idea but remember, the money is for emergencies only!
I would also cross Fixed Deposit (and products like FD) out because to withdraw the money before maturity will cost me! Sometimes even the whole interests/dividends earned are scrapped.
With all these criterions, one product comes to mind. That is, the savings account at Tabung Haji. You even earn some considerable amount of dividends as well! However, I asked the bank officer at Tabung Haji and unfortunately, non-muslims can’t have savings accounts with Tabung Haji. Sorry fellas!
For Tabung Haji accounts, there are no limits on how much you want to deposit or withdraw. Just that, if you want to withdraw a sum of over RM10,000, you will be issued a cheque in your name instead of cash. You then deposit this cheque in your other transaction account. So, give or take, you’ll have access to your money in about 3 days. I have no idea whether the account can be linked with internet banking or not.
On the other hand, if you have strong self-control and have a stringent money policy, then it really doesn’t matter on where you keep that emergency fund. As long as it is there when you need it, easy to access (when the needs arise of course), and earn some interests/dividends while it is lying idle. Just remember that it might not be wise to put that sum of money someplace where you could lose it, like in an aggressive unit trust fund. Who knows, tomorrow the market crashes, and the fund loses 75% of its value, and tomorrow is also the day you need to pay for your kid’s surgery. Murphy’s Law anyone?
Till next post folks.
Disclaimer: This article is not a specific nor general advice on managing your money. This article does not constitute a recommendation nor does it take into account your investment objectives, financial situation nor particular needs.
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