What is an emergency fund and how to build one

Even with the best planning, life has a way of throwing surprises our way. An emergency fund acts as your personal safety net, ensuring you stay financially stable when things don’t go as planned.  

In this guide, we’ll explain what an emergency fund is, why it’s important, how much you should have, and practical steps to start building one today. 

 

What is an emergency fund? 

 

An emergency fund is money that you set aside specifically to cover unexpected expenses. Unlike general savings or investment accounts, this fund is reserved for urgent situations that require immediate financial support such as: 

 

• Medical emergencies or unexpected healthcare costs 

• Sudden job loss or reduced income 

• Urgent car repairs or transportation issues 

• Emergency home repairs such as plumbing or electrical problems 

• Unexpected travel due to family emergencies 

Why is an emergency fund important? 

 

Having a solid emergency fund serves as a buffer that prevents you from relying on credit card payments, fast cash loans, or draining your investments to pay off unexpected expenses. It helps you avoid taking on any unnecessary debt, so that your finances are secure and stable. 

 

Having this financial safety net also grants you more control over your life. In the event of a job loss, you can focus on finding a role that fits your goals instead of accepting a position just to pay the bills. 

How much should your emergency fund be?

 

If you’re just getting started, setting aside RM500 to RM1,000 is a great first step towards building your emergency fund. From there, a common rule of thumb is to gradually grow your savings to cover at least three to six months’ worth of your household income for a more solid financial safety net.  

 

However, there’s no one-size-fits-all amount. The size of your emergency fund should reflect your personal circumstances and financial commitments. 

 

One key factor to consider is your income stability. If you’re a freelancer or gig worker, your income may fluctuate from month to month. In this case, having a larger emergency fund can help you stay financially secure during slower periods. 

 

Household size also plays an important role. The more dependents you have under your roof, the higher your potential expenses, which means you may need additional savings to cover unexpected costs. 

 

Another consideration is your job market. If you work in a specialised industry where it might take longer to find a new job, having more money set aside can give you greater peace of mind if you ever need to make a transition. 

How to build an emergency fund 

 

Building an emergency fund takes time, but consistent saving habits can make the process manageable. Start by calculating your essential monthly expenses, such as rent or mortgage, utilities, and groceries. Then multiply it by three to six months to set your long-term target. 

 

Once you have a goal in mind, the next step is to choose a savings method that helps you stay consistent. This could be something simple like following the 50-30-20 rule, committing to a no-spend week each month, or trying gamified savings challenges that make budgeting more engaging. The key is to pick an approach that fits your lifestyle so you can stick with it over time. 

 

It also helps to keep your funds separate from your daily spending. Setting up a dedicated account makes it easier to track your progress and reduces the temptation to dip into your savings. You can make this even more effective by automating regular transfers, like RM25 or RM50 a week, to build your fund steadily with minimal effort. 

 

Finally, look for ways to boost your savings where possible. Cutting back on non-essential expenses such as frequent dining out, unused subscriptions, or impulse purchases can free up extra cash. Instead, redirecting these savings into your emergency fund can help you reach your goal faster. 

Where to keep your emergency fund 

 

Choosing the right place to store your emergency fund is important. Your money should be safe, liquid, and easy to access when needed. Some of the most common options include: 

 

• High-yield savings accounts: These are a step up from basic accounts, offering better interest rates while ensuring your cash remains fully accessible for immediate withdrawals. 

 

• Flexible fixed deposits: While traditional fixed deposits (FDs) often lock your funds for 1 to 60 months, many modern flexible options now allow for premature withdrawals without losing your earned interest. This gives you the benefit of a guaranteed rate with the safety of a backup plan.

 

• Low-risk investment accounts: While volatile markets are generally avoided for emergency cash, low-risk options investment accounts are specifically designed for capital preservation. They offer daily returns and high liquidity, making them a smart middle ground for your rainy-day fund.  

 

These options provide security while allowing you to withdraw funds quickly during emergencies. 

Maximise your savings with TNG eWallet 

 

TNG eWallet provides two solutions that balance easy access with steady growth. GO+ invests your money in the Principal e-Cash Fund and offers daily returns, typically around 3.41% to 3.45% p.a., while keeping your funds fully accessible. 

 

Alternatively, the Save feature provides a secure way to separate your savings from your main wallet balance to prevent accidental spending. Managed by Principal Asset Management, your funds are placed in the Principal Islamic Money Market Fund and offers projected returns of up to 3.95% p.a. with the flexibility to add funds whenever you choose. 

Start building your emergency fund today 

 

Protect your finances by building your emergency savings in Save and GO+. By contributing regularly, no matter the amount, you’ll gradually create a dependable safety net and be better prepared to handle life’s unexpected situations with ease.  

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Cover image credit: Towfiqu barbhuiya via Unsplash