How much cash do you need

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#1
One good article on emergency fund. Most of them, are known by VB buddies here, but no harm to re-enforce good practices. It is probably a good idea to keep part of the emergency fund in Sg saving bonds. What do you think?

How much cash do you need

Just after Chinese New Year, Rakuten surprised about 30 of its employees in Singapore by telling them they were being made redundant and having them leave the office immediately. Over the last couple of months, employees at Shell, Barclays, Yahoo and Resorts World Sentosa have faced redundancies too. While some of these people may have found a new role right away, a key question for others is how to pay the bills until they find a new job.

HOW MUCH CASH IS ENOUGH

Experts suggest keeping about six months’ worth of expenses available for just such a situation.

Investment management firm Vanguard says most experts believe you should have enough money in your emergency fund to cover at least three to six months’ of living expenses, for instance, and some experts suggest even more. AXA suggests that since we often hear cases of friends or relatives falling on tough times, such as an illness like cancer or being retrenched, “the usual recommended emergency fund should be large enough to provide for at least six to 12 months of living expenses”.

Factors that affect how much to save include how secure your job is, how marketable your skills are, and the likelihood of healthcare or other emergencies.

The reason for saving, as personal finance portal MoneySmart explained, is that building an emergency fund gives a financial “buffer” to pay out-of-pocket expenses. “You don’t have to rely on loans or credit cards to cover any financial emergency, from your home loan repayment to your phone bill.”

Those recommendations tally with Ministry of Manpower data, which recently showed that 54 per cent of people made redundant found “re-entry into employment” within six months and 67 per cent within 12 months.

They also fit with Singaporeans’ current practices and goals. The Financial Planning Standard Board’s 2015 Singapore Survey showed that 55 per cent of Singaporeans say building savings or an “emergency” fund is one of their top five priorities. The Blackrock Global Investor Pulse Survey also found that Singaporeans are generally risk-averse and need to have an average of seven months’ worth of salary in savings before feeling comfortable enough to invest.

HOW TO SAVE

While putting money aside may seem difficult, the UK Money Advice Service offers highly practical suggestions on how to set up an emergency fund. The first step is to estimate amounts for critical expenses such as food, housing, healthcare, utilities and transportation. Then, start saving by “stashing away smaller amounts on a regular basis, like every week. If you keep it up, over time you’ll eventually meet your goal”. Those funds should go into investments that are safe from market risk, easy to access and interest-bearing.

To make saving easier, financial advisor Suze Orman suggests opening a savings account and naming it something like My Emergency Fund, so you feel great knowing you are building security and also remind yourself of your goal. “Sure, it could take years to reach your goal,” Ms Orman advised. “The important issue is that you are starting to save today.”

It can also be beneficial to set up separate funds for unexpected expenses and for emergencies. University of Minnesota Extension Educator Susan Hooper noted a difference between “set aside savings”, for periodic expenses such as replacing a broken appliance or travelling to visit a sick relative, and ”emergency income savings”, to pay the mortgage and utilities if income stops for a few months. “This money could prevent eviction,” she said.

MAKING THE MOST OF THE CASH

One challenge, as MoneySmart noted, is that “savings accounts in Singapore tend to offer rather pathetic interest rates”. Even so, “you want to stick with a savings account for one major reason – liquidity. If you tie up your emergency funds in stocks, bonds or mutual funds, you’re not only putting your cash at risk if the market dips – you’re making it harder to get to your cash quickly if disaster strikes.”

A team led by Prairie View A&M University Faculty Member Janine Scott has a different view, however, as they found that keeping all of your emergency fund dollars in cash may be a bad idea, especially for more affluent investors. Their research showed that allocating six months of expenses to cash resulted in both lower overall wealth at retirement than investing that money in stock and bond funds, and also more frequent situations in which the fund failed to cover emergencies.

It may be preferable for some people, then, to put funds into an Exchange Traded Fund (ETF) that invests in short-term bonds or another investment that pays more yet is still immediately accessible and less volatile.

WHAT TO DO

While the amount to put into an emergency fund and where to keep the money may vary from person to person, it is essential to put money aside so you are prepared for any situation. Even though few of us expect or even want to think that we may be made redundant or face a healthcare scare anytime soon, being prepared for uncertainties can ensure that we don’t face even more calamities if an unexpected emergency does indeed happen.
http://www.todayonline.com/business/how-...epage=true
“夏则资皮,冬则资纱,旱则资船,水则资车” - 范蠡
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#2
(07-03-2016, 09:24 AM)CityFarmer Wrote: One good article on emergency fund. Most of them, are known by VB buddies here, but no harm to re-enforce good practices. It is probably a good idea to keep part of the emergency fund in Sg saving bonds. What do you think?
SSB can serve its purpose in bond laddering. But as part of an emergency fund, it will fail the test of liquidity.
As extracted from the SSB website:
"The redemption period opens at 6pm on the 1st business day of each month and closes at 9pm on the 4th last business day of the month. Redemption proceeds will be paid by the end of the 2nd business day of the following month"
http://www.sgs.gov.sg/savingsbonds/Your-...edeem.aspx
Going by that, it can be assumed that it will take 6 business days to access your funds in SSBs. Some may feel comfortable keeping part of it in SSBs if it is envisaged that any emergency will only see a phased withdrawal of monies (e.g. loss of a job). I prefer to take the approach that the whole lump sum may be needed urgently.
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#3
Is not uncommon to know people jobless for a year. So at minimum today in modern Singapore, i would keep at least 2 years of emergency funds. As for those in 40s and 50s married/children, there maybe possibilities you will suffer a drastic pay cut even after you have found a job. And you still need Emergency fund after. So 4-5 years of saving to service home loan and children education maybe needed unless you have a reasonable passive income that can supplement it.

Just my Diary
corylogics.blogspot.com/


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#4
(07-03-2016, 11:14 AM)corydorus Wrote: Is not uncommon to know people jobless for a year. So at minimum today in modern Singapore, i would keep at least 2 years of emergency funds. As for those in 40s and 50s married/children, there maybe possibilities you will suffer a drastic pay cut even after you have found a job. And you still need Emergency fund after. So 4-5 years of saving to service home loan and children education maybe needed unless you have a reasonable passive income that can supplement it.

Yes. Mid-life redunancy is very real. Those in the 30s (when their careers are still on uptrend) should prepare for it, rather than wait until 40s.

I also think in this aspect, 'net cash' is not a good practice. 'net cash' meaning cash > housing loan/liability. coz if house valuation drops jialat jialat, banks ask u to top up. cash < housing loan. worst case scenario.

better to pay off housing loan progressively while maintaining an emergency fund. And hope to pay off housing loan before situation turns bad.
"... but quitting while you're ahead is not the same as quitting." - Quote from the movie American Gangster
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#5
I split life into 30 years each: Consume- income- retirement

100 years ago there is no problem with retirement cause people hardly live beyond 50. For the modern man the 1st 30 years one hardly save anything after investing in yourself, marriage, house etc and income is generally low.

So actually the middle portion of 31-60 years old is very critical: Technically 1) it is suppose to produce an ROI or breakeven period for the 1st 30 years of consumption / investment. Let's say you breakeven (including your parents' cost and a roof over your head) at 45, the next 15 years is to accumulate retirement funds for the last 30 years. Accidents / illness / retrenchments will make the maths very complicated. That's why in other threads it is obvious I am a suppporter of a prudent CPF policy. The last 30 years is either a blessing or a problem, not only personally but also nationally. Japan is the first to feel the full onslaught of the strain

Modern man has to choose and plan carefully how he wants to spend the extra time that he's been given vs folks 100 years ago.
Before you speak, listen. Before you write, think. Before you spend, earn. Before you invest, investigate. Before you criticize, wait. Before you pray, forgive. Before you quit, try. Before you retire, save. Before you die, give. –William A. Ward

Think Asset-Business-Structure (ABS)
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#6
if u add kids in the picture, ur breakeven pt will easily be push back by 20 yrs.so u can only start saving from 50yrs, supposingly u hv kids at 30.basically u can be prepared to wk till ur last days...

[Edited by moderator for readability]

(07-03-2016, 01:51 PM)specuvestor Wrote: I split life into 30 years each: Consume- income- retirement

100 years ago there is no problem with retirement cause people hardly live beyond 50. For the modern man the 1st 30 years one hardly save anything after investing in yourself, marriage, house etc and income is generally low.

So actually the middle portion of 31-60 years old is very critical: Technically 1) it is suppose to produce an ROI or breakeven period for the 1st 30 years of consumption / investment. Let's say you breakeven (including your parents' cost and a roof over your head) at 45, the next 15 years is to accumulate retirement funds for the last 30 years. Accidents / illness / retrenchments will make the maths very complicated. That's why in other threads it is obvious I am a suppporter of a prudent CPF policy. The last 30 years is either a blessing or a problem, not only personally but also nationally. Japan is the first to feel the full onslaught of the strain

Modern man has to choose and plan carefully how he wants to spend the extra time that he's been given vs folks 100 years ago.
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#7
(07-03-2016, 10:54 AM)Caelitus Wrote:
(07-03-2016, 09:24 AM)CityFarmer Wrote: One good article on emergency fund. Most of them, are known by VB buddies here, but no harm to re-enforce good practices. It is probably a good idea to keep part of the emergency fund in Sg saving bonds. What do you think?
SSB can serve its purpose in bond laddering. But as part of an emergency fund, it will fail the test of liquidity.
As extracted from the SSB website:
"The redemption period opens at 6pm on the 1st business day of each month and closes at 9pm on the 4th last business day of the month. Redemption proceeds will be paid by the end of the 2nd business day of the following month"
http://www.sgs.gov.sg/savingsbonds/Your-...edeem.aspx
Going by that, it can be assumed that it will take 6 business days to access your funds in SSBs. Some may feel comfortable keeping part of it in SSBs if it is envisaged that any emergency will only see a phased withdrawal of monies (e.g. loss of a job). I prefer to take the approach that the whole lump sum may be needed urgently.

A liquidity within 6 business day, should be sufficient for most emergency fund, I guess. You may not need to put all the fund into SGS bond, but part of it. If you need the full sum at the first few days, I reckon, the fund may not be able to sustain you for the targeted months.  Big Grin 

(respect your choice, but present alternate view)
“夏则资皮,冬则资纱,旱则资船,水则资车” - 范蠡
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#8
(07-03-2016, 03:19 PM)funman168 Wrote: if u add kids in the picture, ur breakeven pt will easily be push back by 20 yrs.so u can only start saving from 50yrs, supposingly u hv kids at 30.basically u can be prepared to wk till ur last days..

That depends on how many kids the couple have. 2 still manageable. I have one and I am pretty confident to be able to retire before age 50. My friend age 43 just realized his wife pregnant with triplets, likely due to IVF  Tongue . He has been feeling stressed recently. For his case, I think high chance he has to work till retirement age.
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#9
how much cash you need is dependent on the lifestyle you want. if just the lifestyle you need I guess most VB buddies should be able to retire by age 50. Want is the variable factor but of course in unforeseen circumstances the retirement age may be extended.

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#10
True. There's no point to retire early and live like a "Beggar" for the sake of retiring. Rather I feel reasonable WANTS need to be achieved and with Safety Margin. You can't expect yourself to go back to work later on when there is not enough cash to go around. We can't turn back the clock once we hit 70s, 80s or even 60s. The job is not there any more and your Salary is probably so low is not going to matter much.

Just my Diary
corylogics.blogspot.com/


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