After you read my blog about “Savings – Foundation for Creating Wealth”, I heard the wheels of your brains working & one of the questions forming is “so why do I need to save?”
Some may think this is a dumb question to ask but I beg to disagree. I think that if you have this question in your head, it is perfectly normal especially if your lifestyle or mindset has been used to spending like there’s no tomorrow.
All of us have dreams & aspirations in life which can be as simple as having a pint of beer just to unwind & bond with friends (sounds simple but it is very expensive here in SG) or can be as expensive as a trip to Europe or a branded bag or a brand new phone.
For parents, it can be a simple dream of a movie night with the kids where they will watch the latest movie and have dinner afterwards or can be as expensive as sending their kids to private school or going to Hong Kong Disneyland.
For retirement planning, it can be as simple as having your own bahay kubo (nipa hut) in the province or can be as expensive as being able to travel at least every quarter to somewhere new or going for checkup in private hospitals which have the state of the art medical equipment.
I think you catch my drift.
Whether we like it or not, money is an important component in our lives.
We will need to save in order to build our emergency fund, fund our dreams and aspirations and prepare for our retirement – whether planned or early as retirement can happen anytime (early or unplanned retirement can be due to plant closure, consolidation, mergers & acquisitions, re-structuring, etc.).
But wait. Do you know what an emergency fund is?
According to Investopedia, Emergency Fund is an account that is used to set aside funds to be used in an emergency, such as the loss of a job, an illness or a major expense. The purpose of the fund is to improve financial security by creating a safety net of funds that can be used to meet emergency expenses as well as reduce the need to use high interest debt, such as credit cards, as a last resort. (Source: http://www.investopedia.com/terms/e/emergency_fund.asp)
Most financial planners will recommend 3-6 months of monthly expenses for single people and 6-12 months for married people but there are different schools of thoughts. Some say it should be based on monthly expenses & others say it should be based on monthly income.
At the end of the day, it is your call. Whatever you decide on, it should be the amount that will help you sleep better at night. If you feel more secured keeping 12 months, then go for it.
Food for thought from Chinkee Tan from his book “For Richer For Poorer”:
- Save for a Rainy Day – Stop expecting the bad things in life
- Save for a Sunny Day – Retire, travel around the world and enjoy the rest of your life.
So my question to you, what do want to save for? Is it for a rainy day or a sunny day?