How I Prepare an Emergency Fund

Introduction

Initially, I didn't know much about emergency funds, but the Covid-19 pandemic made me realize their importance. Preparing an emergency fund might seem daunting, but I found that small, consistent steps can make a big difference. In this article, I will share how I prepared my emergency fund and the lessons I learned throughout the process.

Identifying Emergency Fund Needs

Determining the amount of an emergency fund should be based on individual preferences. Each person may require a different amount of emergency funds, depending on their monthly expenses and lifestyle. The amount can actually be more manageable if we exclude lifestyle expenses, as an emergency fund is practically meant to cover basic survival needs (food and drink).

I need an emergency fund that covers about 12 times my monthly expenses. Since my monthly expenses are around Rp 10,000,000, the total amount I need to prepare is Rp 120,000,000.

Creating a Savings Plan

After identifying my target of Rp 120,000,000, I began planning how to save it. I decided to set aside Rp 5,000,000 each month. To simplify the saving process, I opened a savings account at Bank Mandiri. Currently, I manually transfer funds to this account after meeting my necessary expenses.

Reducing Expenses

I looked for ways to reduce my monthly expenses to set aside more money for my emergency fund. I started by identifying unnecessary expenses, such as streaming subscriptions, dining out, and trips to the mall. By cutting back on these expenses, I hope to increase the amount of money I can save each month.

Maintaining Consistency

There are many temptations to use emergency fund money when enticed by discounts or promotions. For example, in March 2024, I used my emergency fund to purchase electronic items such as an electric stove, cooking utensils, a washing machine, and two refrigerators. As a result, my emergency fund decreased by Rp 18,259,641. Moving forward, I am committed to replenishing my emergency fund.

Choosing the Right Storage Place

I chose a savings account that I can access through mobile banking. The account I selected does not offer competitive interest rates, as the most important factors are liquidity and accessibility whenever needed.

Handling Unexpected Events

A few months ago, I faced an unexpected event where I needed to purchase a phone. Thanks to having an emergency fund, I was able to handle the situation without incurring debt or disrupting my finances. After this incident, I immediately began saving again to replenish the funds I had used.

Emergency Fund Progress

How I Prepare an Emergency Fund

As of the writing of this article, my emergency fund progress has reached 17.15%. In the deviation column, I saved Rp 9,000,000 in February, but in March, I had an unexpected expense of Rp 18,000,000. In April, I was only able to save Rp 7,000,000. In June, there was another expense of Rp 900,000. My target is to fully fund the emergency fund by December 2024.

Conclusion

Based on my experience, an emergency fund provides a sense of security and peace of mind, knowing that I am prepared for unexpected events. I hope my experience can inspire readers to start saving and build their own emergency fund. Preparing an emergency fund is not an easy task, but with planning and consistency, it is achievable.