Whether its losing a job or meeting an accident (touch wood), emergencies cost money to resolve and overcome. While you can’t anticipate emergencies, you can prepare for them. But how much should you save? What counts as an emergency? 

What is an emergency fund?

If you suddenly lose your job and don’t have enough savings, you will struggle to pay for food or rent. If you have a baby or parents who depend on you financially, imagine not being able to provide for them! An emergency fund is savings you put aside to cover unexpected expenses that have a direct impact on your wellbeing. Examples include medical bills, job loss, or family related expenses. Having savings on the side helps you cover these costs without taking on debt or having to make difficult decisions like selling off your assets to cover a medical bill.  Take note that “emergencies” exclude unplanned purchases that you can live without, for example that new iPhone 13 or a handbag that is suddenly on sale (we know you are thinking it).  

How much should you save in your emergency fund?

A general rule of thumb is to have 3 to 6 months’ worth of living expenses in your emergency fund. You may need more if you have many people who depend on you financially.

Emergency Saving Calculator

Savings

Current emergency savings
How much do you already have saved in your emergency fund?
RM
How many months of expenses do you want your fund to cover?
A general rule of thumb is to have three to six months’ worth of expenses
7
Monthly Savings
How much can you contribute to your emergency fund every month?
RM

Add my monthly spending

Housing
Rent, home loan payments, maintenance fees, residential fees, taxes
RM
Utilities
Internet bill, mobile plan, electricity, water
RM
Food
Groceries, dining out, food delivery
RM
Transportation
Vehicle loan, road tax, insurance, petrol, maintenance, toll, public transportation
RM
Insurance
Life, medical, critical illness, personal accident
RM
Debt
Credit card payments, loans
RM
Others
RM

Totals

Months
Would you be able to achieve this target?

How does this emergency fund calculator work?

Use our Emergency Fund Calculator below to help you estimate and plan how much you’d need to save, and how quickly you can reach your saving goal. In just a few clicks, you can: 

  • Calculate your total monthly expenses
  • Plan how much you should save (in the event of an emergency)
  • Estimate how long you’ll take to reach your saving goal

Why do you need an emergency fund?

  • Cover unexpected expenses. Life will throw financial curveballs at you, whether it be your car breaking down, a midnight medical emergency or a retrenchment. Your emergency savings will help cover these costs without burdening you too much financially. 
  • Avoid taking on debt. Without an emergency fund, a sudden urgent expense may force you to charge your credit card or take out a personal loan. Although they can be helpful when you’re financially desperate, you could end up paying high interest debt if you don’t repay on time. 
  • Avoid dipping into other savings. By having an emergency savings, you won’t have to withdraw from your other savings. Imagine having to withdraw money you’ve been saving to get married or buy a house – because your car broke down or you met an accident (again, touch wood). 
  • Avoid using investments. Withdrawing your investments to cover unexpected costs can harm you financially in the long run. That’s because you may be forced to sell your investments at a loss, or forfeit a potentially good Return on Investment (ROI) in the future. You’ll also incur more transaction costs when you buy and sell your investments frequently. 
  • It gives you financial flexibility. An emergency fund gives you freedom to make certain decisions without being limited by your financial situation. For example, if you were a freelancer, you wouldn’t have to take on clients you don’t like just because you really need the money. 

How do you build an emergency fund?

If you don’t have enough to save 3 to 6 months’ worth of expenses, it is ok to start small. Here’s a step-by-step guide to building your emergency fund:

  • Calculate your savings target. Use iMoney’s Emergency Fund Calculator to help you figure out your target emergency fund amount. 
  • Set a monthly savings amount. Decide how much you can afford to contribute to your emergency fund every month. If money is tight, you can start small and gradually increase your savings every month. For example, if you can only put aside RM50 this month, that’s okay! Try aiming for RM55 next month, then RM60 the month after, and so on. 
  • Schedule automatic transactions. Consider setting up automatic transactions to your savings account every month. This way, you won’t be tempted to spend your savings.
  • Review savings. As you get closer towards your target, check your savings periodically (e.g. every three months). Consider if you can or need to increase your monthly contributions to your emergency fund, especially if you’ve recently withdrawn from it. 
  1. Reach emergency fund target. Congratulations! Having a sufficient emergency fund is a great achievement. Once you’ve reached your target amount, you can consider investing any additional savings. 

Where should you keep your emergency fund?

Your emergency fund should be kept somewhere safe and accessible at any time. Avoid putting them where the value of your money could fluctuate a lot in the short term – for example, in stocks or crypto. Instead, here are the best places to keep your emergency fund:

  • Savings accounts. These accounts let you instantly access your money any time. This is a great plus, as you don’t know when you’ll suddenly need to cover an emergency expense. The only downside is that savings accounts generally offer low interest rates. Some accounts do offer higher returns on your savings, but you may need to jump through some hoops to be eligible. 
  • Fixed deposit accounts. These accounts generally offer better returns than savings accounts. However, they require you to lock in your money under a tenure (e.g. one month, six months, one year, etc.). You can still withdraw money anytime you like, but if you withdraw before the tenure is up, you may lose some or all your interest.

Should you use your emergency fund to pay off debt?

There’s good debt, and there’s bad debt.  Generally, if you only have good debt – for example, your home loan or your education loan – it might not make sense to pay them off with your emergency savings. That’s because these debts incur low interest rates, so there’s no rush to get them paid off. It’s more important to protect yourself against any financial emergencies that could arise. Besides, paying off a loan early doesn’t always make financial sense, as you’ll lose out on opportunities to grow your money. However, saving for emergencies shouldn’t take priority if you can’t pay off your loans. For example, if you’ve suddenly lost your job, and you’re struggling to pay off your home loan this month, then it’s a good idea to use your emergency fund – after all, that’s what it’s for! Missing your loan payments could lead to late fees, a lower credit score and put you at risk of bankruptcy.  On the other hand, if you have bad debt – for example, credit card debt or high-interest personal loans – consider if you can pay them off. That’s because these are high-interest debts that can drain your finances faster than you could grow your savings. If these debts are keeping you from building your emergency fund, you could also consider consolidating these debts under a new loan with lower interest rates – this could help reduce your monthly debt payments.