Friday, September 22, 2017

Emergency Fund and other Miscellaneous Updates

Since writing this post, I have been faithfully allocating a portion of my salary to our emergency fund. For the months of August and September, I contributed a total of $3000 to the emergency fund, bringing the total sum up to around $14000. Assuming a monthly contribution of $1500, our emergency fund will hit the target sum of $20000 in January 2018.

Well, I could accelerate the process though. I could consider bumping up the monthly contribution amount. But is this worth it? It will make me cash-strapped and miserable for the next few months, just to hit the target, at most, a month earlier?

Then there's also that small sum of money that will come in from the delisting of Croesus Retail Trust. Should it go into our emergency fund or to my war chest? As it stands, I'm going to allocate it equally between our emergency fund and my war chest.

The more I think, the more I question my own judgment. Is $20000 really sufficient to tie my mum and I over any setbacks that could arise from a recession? If that's the case, $25000 sounds like a better number. Wait! Why not $30000? The action that I will take from this realization is to continue contributing a smaller sum each month to the emergency fund once the target $20000 is hit. Therefore, I could scale up my contributions to my war chest while still maintaining some sort of contribution to our emergency fund. So, that's that.

Recently, I have also been thinking of plonking down my CPF monies into investment. For now, this is just a thought experiment. I transferred the entirety of my OA to my SA after my first year in the workforce, to aid in the compounding as well as to "try it out." Since that single occasion, I have done nothing to my CPF funds.

Sure, I could compound my CPF funds faster if I leave my OA at $0 perpetually. I'm glad that prudence won out and that there are still funds in my OA right now. I am currently trying to evaluate, from various angles, what are the drawbacks from investing with one's CPF monies during market crashes. After all, a veteran financial blogger once implied that market crashes provide sufficient margin of safety to invest your nest egg in quality, high-yielding companies that would be able to beat the OA (and, maybe, the SA) interest rate. Anyway, I can't do much. My OA is still underfunded and it will take some time for it to grow.

On the work front, my contract is renewed for the next two years. Similarly, my colleagues' contracts are also renewed. I am still cautious as it is not a funding issue but a data collection issue (see here). Soooooooo, if the numbers do not come in, the project would still fold. Oh yes! My colleagues are already celebrating (......and inflating their lifestyle). -.-

I am also on the lookout for a Critical Illness Insurance policy. That is one area where I am still lacking coverage. As there are some changes in the policy in my work place, I can no longer use my company's flexible benefits for education. Instead, I could use those same benefits for insurance instead. So, all is not too bad. I am thankful.

10 comments:

  1. Hi UN,

    Glad to hear that everything is falling into places!! It’s a good battle between Transfer of OA to SA vs CPFIS during market crash?? Hehe.

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    1. Hi Sleepydevil,

      Thanks for visiting! :D

      Yeah, if you observe the potential yields you could get in a market crash. And that's not counting the capital gains yet. :P

      Delete
  2. Hi UN,

    If you are building wealth for the long term, a few more months won't matter in the long run. If you are not confident of your short term prospects, allocate more resources to short term liquidity / free cash flow. Ultimately its about risk aversion and personal circumstances.

    Assuming you are staying and getting married in Singapore, you should allocate sufficient funding to your OA and not plonk it all to SA. OA funds are relatively illiquid (much less to say SA funds). Unless you have a windfall in cash and can pay your HDB in cash. Transfers into SA is irreversible.

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    1. Hi INTJ,

      I'm not getting married anytime soon. So the possible actions I could take is to transfer it to my SA or to build it up sufficiently for crisis investing.

      Delete
  3. I have to be honest. I don't have a good idea how to evaluate what's a sufficient emergency fund size. It really depends on your personal circumstances and expense levels. And there's no way to stress test it because you will only know whether it's enough when the emergency event happens. If you are on a single income supporting 2 people, maybe it's better to have a bigger emergency fund?

    If you are planning to use your CPF-OA to buy a property in Singapore in the future, is it better to keep the contributions in it without investing them? I don't plan to ever invest my CPF-OA contributions and prefer to keep them as my housing emergency fund. Congrats on having your contract renewed!

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    1. Hi Finance Smith,

      I don't foresee myself getting a property in Singapore anytime soon. Will most probably be using my CPF for crisis investing when the opportunity arises (once it builds up to a sizeable amount).

      Agree with you completely regarding emergency fund size. If my simulation of random negative scenarios go far off the mark, I'll pay a heavy price for that.

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  4. Don't forget that in a recession, there are still ways to get an income. It may be drastically smaller than your pre-recession income but it is still an income.

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    1. Hi Leopard,

      We all learn to make the best out of the curve balls life throws at us. :)

      Cheers

      Delete
  5. Hi UN

    U plan very good as u slowly building up ur emergency fund. But my personal feel $20k is a bit risky for 2 person, especially for lady (here I mean ur mum). As lady getting older will have higher risk to lady sickness, erh u know what I mean here right?
    For example myself alone, I set more than $20k emergency funds. As I get older I will set higher. U still young, plan wisely :)
    Btw, don't anyhow buy insurance. Half of my net worth being flush to toilet bcos of I anyhow buy insurance that not necessary during my young time. I didn't do much planning also that time. Now old already, too late for me to get back what I lost. Just sharing my experience here :)
    All the best to ur planning for emergency fund & insurance...

    Cheers

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    Replies
    1. Hi Sy,

      Got it! That's why I have my doubts whether $20k for 2 ppl is sufficient. If it's for 1 person, still "okay"..... =/

      Guess I might want to beef it up further.

      Ouch to your insurance. >.<

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