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How to build up an emergency fund before you start investing.

Updated: Jul 30, 2022

KEYPOINTS:

๐Ÿ”‘ Building up sufficient emergency funds is important before starting investing

๐Ÿ”‘ Aim to build at least 3-6 months of emergency funds


TOOL:

๐Ÿ› ๏ธ: ๐Ÿšจ Emergency fund builder (Maximizations.com) (download to use)


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Why it's important to have some emergency funds saved before you start investing?

  • As long term investors, we are not expected to sell our stocks to fund our short-term expenses.

    • Market corrections, on average last up to 1.5-2 years

      • selling the stocks when their values have decreased will lock in the losses.

      • hence it is not a wise thing to do so.


How much emergency funds should I have before I start investing?


  • This is a template I have created to help you build & keep track of your pool of emergency funds.




Do I really need to build up 6 months worth of emergency funds before I start investing?

  • Personally, I would prioritise on achieving at least 3 months of emergency funds first.


  • Then from then on, my monthly savings from my income will be split accordingly to both my:

    • Emergency funds pool

      • so it will continue to reach the 6 months benchmark.

    • & investment funds

      • so I am able to start my investment journey too.


Exp: saving 25% of total monthly income to build the emergency & investment funds
Exp: saving 25% of total monthly income to build the *emergency & *investment funds

Factors to consider:

  • If the market is quite overvalued

    • it will be wiser to hold back your investing

    • and focus on building your emergency funds to the 6 months mark first.


What should I do during the period when I am saving up for at least 3 months worth of emergency funds?

  • This will be the best time to start shortlisting companies/ assets you are interested in

    • and perform your due diligence

    • so hopefully by the time when you are ready to invest

    • you would have built up your conviction for the assets of your choice.

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