Strategy to Build an Emergency Fund.
Based on research conducted in America, more than 51% of millennials do not have an emergency fund and cannot live three months without a salary.
Even in developed countries, the millennial generation does not have emergency fund savings, especially in developing countries. The 2020 pandemic proves that the sky won't be blue forever and how important an emergency fund is.
Because emergency funds are the first rung before we get financial freedom, don't have an emergency fund but want to be financially free, Want to be rich but SCBD style. Do not dream.
In this post, I will tell you seven saving strategies so that we can get financial freedom faster, for those of you who have dreams of achieving financial freedom faster than others, you must read this post to the end.
The first strategy is to have the right mindset about saving.
This is important, we have the right mindset first, the main savings that we are talking about this time are emergency fund savings. Savings with emergency are our personal responsibility and emergency fund savings are liquid savings that do not need approval from other people or other parties to disburse them.
It can be disbursed at any time according to our needs and we must commit that it will not be disbursed if the need is not urgent, it's called an emergency, it must be an emergency.
Also, never think of insurance as an emergency fund, especially credit cards and even online loans. Definitely not insurance and debt, whatever the form is not an emergency fund, not an emergency fund savings.
We ourselves must be responsible for saving our emergency funds, this emergency fund savings is also not used for business or joining a certain business opportunity.
Emergency funds are for emergency purposes that cannot be postponed, if your life is not in danger, do not disburse this fund.
I want you to imagine, we are like a fortress, to protect the fort we need a defensive wall, if the defensive wall is strong and thick, then the fort is strong.
Have you ever heard the story of a king who said my people let's sell our fort, because there is a good business opportunity in the other country. Definitely not, so keep an eye on this savings post because it is our last bastion of financial defense.
Believe me, you will feel safer, feel happier when you have a fortress instead of carrying luxury bags like LV, Tory Burch, Lanyard, and others.
In this strategy, we set the mindset, so from where to start?
You can start by opening a savings account.
For the second strategy, write down our basic expenses or write down our basic expenses. For example, for housing, food, transportation, everything we need but basic. Excluding luxury items, you write everything down so you don't miss anything.
In this strategy, we manage expenses, you can have several debit cards. So we can separate emergency fund savings from expense accounts, so our expenses can be more controlled.
The third strategy is to separate the emergency fund account from the daily account. The goal is that we don't feel like rich people because we have a lot of savings, even though it's an emergency fund savings that we shouldn't use.
I separate my emergency fund savings into deposits. Why deposit? Aren't the flowers smaller? This is because the context in this discussion is saving, mainly for emergency funds, not investment. So we are not looking for a high return, but the most important thing is to remain safe, liquid, and not override the potential for growth.
Currently, my biggest emergency fund savings are still parked in my time deposit savings and emergency funds make me feel safer to make other investments that are more radical, more extreme.
If I don't separate it, I might forget or even go crazy when a new iPhone comes out for example or there is a certain promo. For this strategy we keep ourselves from being careless.
The fourth strategy, automation.
What do we often do not save for? Because they forget, because they are not disciplined, because to form a habit is not easy. Even though we know it's very important.
The solution is to do automation, find a way so that we can automatically save. For example, we can open an online savings account, we will be programmed to save automatically. In this way, we will not forget to save, not until the savings are exhausted because of the dark eyes of promos in online shops.
The next strategy, make a progressive target. Not to be safe, we must have an emergency fund savings of at least 12 months, 12 months from our expenses, that's why I asked you to write first our basic expenses. So that we know how much to save, how much money to set aside, and how to get to the goal faster.
But maybe for some people with an emergency for 12 months, this number is quite large, so we will make a small target first, you can start from three months first.
What's the goal?
The goal is to be more enthusiastic and feel more achievable, because you know what? The difficult thing is to take the first step, the difficult thing is actually saving for an emergency fund in the first three months first. Once the three-month target is met, then we can make targets for six months, nine months, and finally 12 months.
After the 12-month emergency fund is fulfilled, then you are free to step into investments with greater risks, so the funds we invest, for example in stocks, crypto, property, are really cold funds. For this strategy we keep our motivation.
The sixth strategy, the next strategy is to build a second layer of defense.
Earlier, I asked you to imagine that we are like a fortress, imagine that our emergency fund savings are like our defense wall. Once the wall is built, we can build a second line of defense. If the ancients built forts, they not only built stronger and thicker defensive walls, they also built canals.
We usually call it MOAT.
If you know the Forbidden City, the Chinese royal palace built by the Ming dynasty has a channel around its walls 52 meters wide, equivalent to a 16-story building height.
Imagine that the second layer of defense for our financial fortress is a channel, the goal is for emergency funds with a lower emergency level. For example, suddenly the laptop breaks, suddenly the cellphone needs to be replaced with a new one, so we can replace it with a newer one by buying cash without needing credit.
In this strategy we can use other instruments, such as SBN, mutual funds, or even bonds, or maybe friends want to secure our funds in the form of dollar savings to save and make our money grow. If you already have a defensive wall, having a new channel can be styled like millennials.
The last strategy is to keep it in a safe place. Put your emergency fund in a safe, liquid, and can be taken at any time. Even though I also have a lot of investments in stock and Crypto assets, for emergency funds I still keep them in Fiat form in conventional banks that are safe and reliable and most importantly safe.