Video by Kelvin Learns Investing via YouTube
Source
In this video, I’ll discuss whether do we need an emergency fund? I’ll also share with you my plan.
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0:00 – Intro
1:01 – Disclaimer
1:22 – Purpose of emergency fund
Emergency funds are useful when we need cash quickly in unexpected events. For example, losing our jobs, accidents, house burnt down. The general rule is to save 3 to 6 months worth of emergency funds. It is not too little, and not too much, just the right amount.
2:32 – Downsides of emergency fund
However, there are several downsides to keeping emergency funds. First is opportunity cost. While the fund is sitting in the bank earning a very low interest. It could have been growing in the stock market. Second, it is losing value due to inflation.
Despite so, the benefit outweighs the downside. Therefore emergency funds are useful.
4:54 – What do other people say
Many people feel that emergency fund is necessary. But according to Warren Buffett and Business Insider, if you have good investments, multiple income streams, have low expenses, possible paid off your house, then emergency fund is optional.
7:12 – What I think
I feel that the 3 to 6 months emergency fund advice is for the general public. Most of us rely heavily on our day job for income. Unemployment length is usually 2-3 months. Many people have finance issues, and don’t have insurance coverage.
8:52 – My plan
Personally, I don’t plan to keep much emergency funds. Here’s why
1. My expenses are low, and my CPF has enough money to pay for 2-3 years of bank loan instalment.
2. I have multiple income sources. So even if I lose 1 income source, I am still able to rely on other income sources.
3. I have insurance coverage. If I have critical illness or got into an accident, I do not have to worry about my finance.
4. I have investments. I am selling options on stocks, earning interest on cryptos. If I needed the money, I can just liquidate the investments. I can also borrow money on margin from the brokers if I ever need to.
5. I can borrow 0% interest from credit cards for 1 month. It’s by using Revolut, where I topup with a credit card, then transfer the cash into my bank account.
*Some of the links and other products that appear on this video are from companies which Kelvin Learns Investing will earn an affiliate commission or referral bonus.*